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KARL MARX

CAPI TAL

Volume III

PROGRESS PUBLISHERS
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KARL MARX

CAPITAL

A CRITIQUE OF POLITICAL
ECONOMY

Volume III

Book III

The Process
of Capitalist Production
as a Whole

Edited by F. Engels

Fourth Impression

PROGRESS PUBLISHERS

Moscow

KAIMTAJI

Tom III

Ha OH9AU&CKOM H3UK6

First published 1959
Second printing 1962
Third printing 1966
Fourth printing 1971
Fifth printing 1974

10101-457

014(011-75

3-75

PUBLISHERS’ NOTE

The third volume ol Capital was prepared for the printer
and published by Frederick Engels in 1894, after the death' of
Karl Marx.

The present English edition follows the German 1894 edition
carefully checked with Marx's original manuscript, now pre¬
served at the Institute of Marxism-Leninism under the C.C.
C.P.S.U,. The misprints and errors in figures and bibliograph¬
ical data discovered in the 1894 edition have been corrected.
All quotations from English and American authors have been
checked with the original sources.

Extensive use has been made of the English translation of
the third volume of Capital, published by Charles H. Kerr
& Co., Chicago, 1909.

The book includes Engels’s Preface to the third volume of
Capital. Engels’s “Supplement to Capital, Volume Three” is
given in the appendix. The book is provided with a name index,
an index of authorities and a subject index.

All quotations from the English text of the first and second
volumes of Capital refer to the publications: Karl Marx, Capital,
Vol. I, Progress Publishers, Moscow, 1963, and Karl Marx,
Capital, Vol. II, Progress Publishers, Moscow, 1962.

CONTENTS

Preface .

BOOK III

THE PROCESS OF CAPITALIST PRODUCTION
AS A WHOLE

PARTI

THE CONVERSION OF SURPLUS- VALUE INTO PROFIT
AND OF THE RATE OF SURPLUS- VALUE INTO THE RATE
OF PROFIT

CHAPTER I. Cost-Price and Profit . 25

CHAPTER II. The Rate of Profit . 41

CHAPTER III. The Relation of the Rate of Profit to the Rate of
Surplus-Value . 49

CHAPTER IV. The Effect of the Turnover on the Rate of Profit 70
CHAPTER V. Economy in the Employment of Constant Capital 77

I. In General . 77

II. Savings in Labour Conditions at the Expense of the Labour¬
ers. Coal Mines. Neglect of Indispensable Outlays. . . 87

III. Economy in the Generation and Transmission of Power,

and in Buildings . 90

IV. Utilisation of the Excretions of Production . 101

V. Economy Through Inventions . 194

VIII

CONTENTS

CHAPTER VI. The Effect of Price Fluctuations . 105

I. Fluctuations in the Price of Raw Materials, and Their

Direct Effects on the Rate of Profit . 105

II. Appreciation, Depreciation, Release, and Tie-up of

Capital . 110

III. General Illustration. The Cotton Crisis of 18G1-G5 . . 124

CHAPTER VII. Supplementary Remarks . 138

PART II

CONVERSION OF PROFIT INTO AVERAGE PROFIT

CHAPTER VIII. Different Compositions of Capitals in Different
Branches of Production and Resulting Differences in Rates of Profit 142

CHAPTER IX. Formation of a General Rate of Profit (Average Rate
of Profit) and Transformation of the Values of Commodities into
Prices of Production . 154

CHAPTER X. Equalisation of the General Rate of Profit Through
Competition. Market-Prices and Market-Values. Surplus-Profit 173

CHAPTER XI. Effects of General Wage Fluctuations on Prices of
Production . 200

CHAPTER XII. Supplementary Remarks . 205

I. Causes Implying a Change in the Price of Production . . 205

II. Price of Production of Commodities of Average

Composition . 206

III. The Capitalist's Grounds for Compensating . 208

PART HI

THE LAW OF THE TENDENCY OF THE RATE OF PROFIT
TO FALL

CHAPTER XIII. The Law as Such .

CHAPTER XIV. Counteracting Influences .

I. Increasing Intensity of Exploitation .

II. Depression of Wages Below the Value of Labour-Power

III. Cheapening of Elements of Constant Capital . . . .

IV. Relative Over-Population .

V. Foreign Trade .

VI. The Increase of Stock Capital .

CHAPTER XV. Exposition of the Internal Contradictions of the Law

I. General .

II. Conflict Between Expansion of Production and Production

of Surplus-Value .

211

232

235

236

237

240

241
241

247

CONTENTS

III. Excess Capital and Excess Population . 250

IV. Supplementary Remarks . 260

PART IV

CONVERSION OF COMMODITY-CAPITAL AND MONEY-CAPITAL
INTO COMMERCIAL CAPITAL AND MONEY-DEALING CAPITAL

(MERCHANT S CAPITAL)

CHAPTER XVI. Commercial Capital . 267

CHAPTER XVII. Commercial Profit . 281

CHAPTER XVIII. The Turnover of Merchant's Capital. Prices 302

CHAPTER XIX. Money-Dealing Capital . 315

CHAPTER XX. Historical Facts about Merchant’s Capital . . . 323

PART V

DIVISION OF PROFIT INTO INTEREST AND PROFIT
OF ENTERPRISE. INTEREST-BEARING CAPITAL

CHAPTER XXI. Interest-Bearing Capital . 338

CHAPTER XXII. Division- of Profit. Rate of Interest. Natural
Rate of Interest . 358

CHAPTER XXIII. Interest and Profit of Enterprise . 370

CHAPTER XXIV. Externalisation of the Relations of Capital in the
Form of Interest-Bearing Capital . . 391

CHAPTER XXV. Credit and Fictitious Capital . 400

CHAPTER XXVI. Accumulation of Money-Capital. Its Influence
on the Interest Rate . 414

CHAPTER XXVII. The Role of Credit in Capitalist Production 435

CHAPTER XXVIII. Medium of Circulation and Capital; Views of
Tooke and Fullarton . 442

CHAPTER XXIX. Component Parts of Bank Capital . 463

CHAPTER XXX. Money-Capital and Real Capital. I . 476

CHAPTER XXXI. Money-Capital and Real Capital. II. ( Continued) 494

1. Transformation of Money into Loan Capital . 494

2. Transformation of Capital or Revenue into Money. That Is

Transformed into Loan Capital . 501

CHAPTER XXXII. Money-Capital and Real Capital. Ill
( Concluded ). . . . . 505

CONTENTS

CHAPTER XXXIII. The Medium of Circulation in the Credit System 520

CHAPTER XXXIV. The Currency Principle and the English Bank
Legislation of 1844 546

CHAPTER XXXV. Precious Metal add Rate of Exchange .... 565

I. Movement of the Gold Reserve . 565

II. The Rate of Exchange . 574

Rate of Exchange with Asia . 576

England's Balance of Trade . 590

CHAPTER XXXVI. Pre-Capitalist Relationships . 593

Interest in the Middle Ages . 610

Advantages Derived by the Church from the Prohibition of
Interest . 612

PART VI

TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND RENT

CHAPTER XXXVII. Introduction . 614

CHAPTER XXXVIII. Differential Rent: General Remarks .• . 640

CHAPTER XXXIX. First Form of Differential Rent (Differential
Rent I) . . . . 649

CHAPTER XL. Second Form of Differential Rent (Differential
Rent II) . 674

CHAPTER XLI. Differential Rent II.— First Case: Constant Price
of Production . 685

CHAPTER XLII. Differential Rent II.— Second Case: Falling Price
of Production . 693

CHAPTER XLIII. Differential Rent II,— Third Case: Rising Price
of Production . 710

CHAPTER XLIV. Differential Rent Also on the Worst Cultivated
Soil . 738

CHAPTER XLV. Absolute Ground-Rent . 748

CHAPTER XLVI. Building Site Rent. Rent in Mining. Price of Land 773

CHAPTER XLVII. Genesis of Capitalist Ground-Rent . 782

I. Introductory Remarks . 782

11. Labour Rent . 790

III. Rent in Kind . 794

IV. Money-Rent . 796

V. Metayage and Peasant Proprietorship of Land Parcels . . 802

CONTENTS

PART VII

REVENUES AND THEIR SOURCES

CHAPTER XLVIII. The Trinity Formula . 814

CHAPTER XLIX. Concerning the Analysis of the Process of
Production . 832

CHAPTER L. Illusions Created by Competition . 852

CHAPTER LI. Distribution Relations and Production Relations 877

CHAPTER LI I. Classes . 885

F. ENGELS. SUPPLEMENT TO CAPITAL, VOLUME THREE 887

I. Law of Value and Rate of Profit . 891

11. The Stock Exchange . 908

INDEXES

NAME INDEX . 911

INDEX OF AUTHORITIES QUOTED IN “CAPITAL",

VOLUME III . 916

SUBJECT INDEX . 927

PREFACE

At last I have tho privilege of making public this third hook
of Marx’s main work, the conclusion of the theoretical part. When
I published the second volume, in 1885, I thought that except for
a few, certainly very important, sections the third volume would
probably offer only technical difficulties. This was indeed the case.
But I had no idea at the time that these sections, the most impor¬
tant parts of the entire work, would give me as much trouble as
they did, just as I did not anticipate the other obstacles, which
were to retard completion of the work to such an extent.

Next and most important of all, it was my eye weakness which
for years restricted my writing time to a minimum, and which,
even now, permits mo to write by artificial light only in exception¬
al cases. Furthermore, there were other pressing labours which
could not be turned down, such as now editions and translations
of Marx’s and my own earlier works, hence reviews, prefaces,
and supplements, often impossible without fresh study, etc. Above
all, there was the English edition of the first volume of this work,
for whoso text I am ultimately responsible and which consequently
consumed much of my time. Whoever has in any way followed
the colossal growth of international socialist literature during
the last ten years, particularly the great number of translations of
Marx’s and my own earlier works, will agree with me that I have
been lucky that the number of languages in which I could be of
help to tho translators, and therefore could not refuse in all con¬
science to review their work, is very limited. But the growth of
literature was merely indicative of a corresponding growth of
the international working-class movement itself. And this im¬
posed new obligations upon me. From the first days of our public
activity it was Marx and I who shouldered the main burden of
the work as go-betweens for the national movements of Socialists
and workers in the various countries. This work expanded in pro-

PREFACE

portion to the expansion of the movement as a whole. Up to the
time of his death, Marx had borne the brunt of the burden in this
as well. But after bis death the ever-increasing bulk of work had
to be done by myself alone. Since then it has become the rule
for the various national workers’ parties to establish direct con¬
tacts, and this is fortunately ever more the case. Yet requests
for my assistance are still far more frequent than I would wish
in view of my theoretical work. But if a man has been active in
the movement for more than fifty years, as I have been, he regards
the work connected with it as a bounden duty that brooks no
delay. In our eventful time, just as in the 16th century, pure
theorists on social affairs are found only on the side of reaction
and for this reason they are not even theorists in the full sense
of the word, but simply apologists of reaction.

In view of the fact that I live in London my party contacts
are limited to correspondence in winter, while in summer they
are largely personal. This fact, and the necessity of following
the movement in a steadily growing number of countries and
a still more rapidly growing number of press organs, have com¬
pelled me to reserve matters which permit no interruption for
completion during the winter months, and primarily the first
three months of the year. When a man is past seventy his Mevnert’s
association fibres of the brain function with annoying prudence.
He no longer surmounts interruptions in difficult theoretical
problems as easily and quickly as before. It came about therefore
that the work of one winter, if it was not completed, had to be
largely begun anew the following winter. This was the case with
the most difficult fifth part.

As the reader will observe from the following, the work of
editing the third volume was essentially different from that of
editing the second. In the case of the third volume there was
nothing to go by outside a first extremely incomplete draft. The
beginnings of the various parts were, as a rule, pretty carefully
done and even stylistically polished. But the farther one went,
the more sketchy and incomplete was the manuscript, the more
excursions it contained into arising side-issues -whose proper place
in the argument was left for later decision, and the longer and
more complex the sentences, in which thoughts were recorded in
statu nascendi. In some places handwriting and presentation
betrayed all too clearly the outbreak and gradual progress of the
attacks of ill health, caused by overwork, which at the outset
rendered the author’s work increasingly difficult and finally
compelled him periodically to stop work altogether. And no

PREFACE

wonder. Between 1863 and 1867, Marx not only completed the
first draft of the two last volumes of Capital and prepared the
first volume for the printer, but also performed the enormous
work connected with the founding and expansion of the Inter¬
national Workingmen’s Association. As a result, already in 1864
and 1865 ominous signs of ill health appeared which prevented
Marx from personally putting the finishing touches to the second
and third volumes.

I began my work by dictating into readable copy the entire
manuscript, which was often hard to decipher even for me. This
alone required considerable time. It was only then that I could
start on the actual editing. I limited this to the essential. I tried
my best to preserve the character of the first draft wherever
it w'as sufficiently clear. I did not even eliminate repetitions,
wherever they, as was Marx’s custom, viewed the subject from
another standpoint or at least expressed the same thought in
different words. Wherever my alterations or additions exceeded
the bounds of editing, or where I had to apply Marx’s factual
material to independent conclusions of my own, if even as faithful
as possible to the spirit of Marx, I have enclosed the entire pas¬
sage in brackets and affixed my initials. Some of my footnotes
are not enclosed in brackets; but wherever I have initialled them
I am responsible for the entire note.

As is only to be expected in a first draft, there are numerous
allusions in the manuscript to points which were to have been
expanded upon later, without these promises always having been
kept. I have left them, because they reveal the author’s intentions
relative to future elaboration.

Now as to details.

As regards the first part, the main manuscript was serviceable
only with substantial limitations. The entire mathematical cal¬
culation of the relation between the rate of surplus-value and the
rate of profit (which makes up our Chapter III) is introduced in
the very beginning, while the subject treated in our Chapter I
is considered later and as the occasion arises. Two attempts at
revising, each of them eight pages in folio, were useful here. But
even these did not possess the desired continuity' throughout.
They furnished the substance for what is now Chapter I. Chapter II
is taken from the main manuscript. There was a series of uncom¬
pleted mathematical calculations for Chapter III, as well as a
whole, almost complete, note-book dating from the seventies,
which presents the relation of the rate of surplus-value to the rate
of profit in the form of equations. My friend Samuel Moore, who

PREFACE

has also translated the greater portion of the first volume into
English, undertook to edit this note-book for me, a work for which
he was far better equipped, being an old Cambridge mathema¬
tician. It was from his summary, with occasional use of the main
manuscript, that I then compiled Chapter III. Nothing but the
title was available for Chapter IV. But since its subject-matter,
the influence of turnover on the rate of profit, is of vital impor¬
tance, I have written it myself, for which reason the whole chap¬
ter has been placed in brackets. It developed in the course of this
work that the formula for the rate of profit given in Chapter III
required modification to be generally valid. Beginning with Chap¬
ter V, the main manuscript is the sole source for the remainder
of the part, although many transpositions and supplements were
also essential.

As for the following three parts, aside from stylistic editing
I was able to follow the original manuscript almost throughout.
A few passages dealing mostly with the influence of turnover
had to be brought into agreement with Chapter IV, which I had
inserted, and are likewise placed in brackets and followed by my
initials.

The greatest difficulty was presented by Part V which dealt
with the most complicated subject in the entire volume. And it
was just at this point that Marx was overtaken by one of the above-
mentioned serious attacks of illness. Here, then, was no finished
draft, not even a scheme whose outlines might have been filled
out, but only the beginning of an elaboration — often just a disor¬
derly mass of notes, comments and extracts. I tried at first to
complete this part, as I had done to a certain extent with the
first one, by filling in the gaps and expanding upon passages
that were only indicated, so that it would at least approximately
contain everything the author had intended. I tried this no less
than three times, but failed in every attempt, and the time lost
in this is one of the chief causes that held up this volume. At

last I realised that I was on the wrong track. I should have had

to go through the entire voluminous literature in this field, and
would in the end have produced something that would neverthe¬
less not have been a book by Marx. I had no other choice but

to more or less cut the Gordian knot by confining myself to

as orderly an arrangement of available matter as possible, and
to making only the most indispensable additions. And so it was
that I succeeded in completing the principal labours for this
part in the spring of 1893.

As for the various chapters, Chapters XXI to XXIV were, in the

Das Kapital.

Kritik der politischen Oekonomie.

Von

Karl Marx.

Dritter Band, erster Theil.

Bitch III:

Der Geaammtprocess der kapitalistischen Production.
Kapitel I bis XXVIII.

Herausgegeben von Friedrich Engels.

Das R«ht d*z VebetMtzung ist vorbehiUen.

Hamburg

Verlag von Otto Meissner.
1894.

Title page of the first German edition of Vol. lit, I, of Capital

(Reduced)

PREFACE

main, complete. Chapters XXV and XXVI required a sifting of
the references and an interpolation of material found elsewhere.
Chapters XXVII and XXIX could be taken almost completely
from the original manuscript, but Chapter XXVIII had to be
re-arranged in places. The real difficulty, however, began with
Chapter XXX. From here on it was not only a matter of properly
arranging the references, but of putting the train of thought into
proper order, interrupted as it was at every point by intervening
clauses and deviations, etc., and resumed elsewhere, often just
casually. Thus, Chapter XXX was put together by means of
transpositions and excisions which were utilised, however, in
other places. Chapter XXXI, again, possessed greater continuity.
But then follows a long section in the manuscript, entitled “The
Confusion”, containing nothing but extracts from parliamentary
reports on the crises of 1848 and 1857, in which are compiled
statements of twenty-three businessmen and economists, largely
on money and capital, gold drain, over-speculation, etc., and
supplied here and there with short facetious comments. Practi¬
cally all the then current views concerning the relation of money
to capital are represented therein, either in the answers or in the
questions, and it was the “confusion ’’revealed in identifying money
and capital in the money-market that Marx meant to treat with
criticism and sarcasm. After many attempts I convinced myself
that this chapter could not be put into shape. Its material, partic¬
ularly that supplied with Marx’s comments, was used wherever
I found an opportune place for it.

Next, in tolerable order, comes what I placed in Chapter XXXII.
But this is immediately followed by a new batch of extracts from
parliamentary reports on every conceivable thing pertinent to
this part, intermingled with the author’s comments. Toward the
end these extracts and comments are focussed more and more
on the movement of monetary metals and on exchange rates, and
close with all kinds of miscellaneous remarks. On the other
hand, the “Pre-capitalist” chapter (Chap. XXXVI) was quite
complete.

Of all this material beginning with the “Confusion”, save that
which had been previously inserted, I made up Chapters XXXIII
to XXXV. This could not, of course, be done without considerable
interpolations on my part for the sake of continuity. Unless they
are merely formal in nature, the interpolations arc expressly
indicated as belonging to me. In this way I have finally succeeded
in working into the text all the author’s relevant statements.
Nothing has been left out but a small portion of the extracts,

PREFACE

which cither repeated what had already been said, or touched
on points which the manuscript did not treat any further.

The part on ground-rent was much more fully treated, although
by no means properly arranged, if only for the fact that Marx
found it necessary to recapitulate the plan of the entire part
in Chapter XLIII (the last portion of the part on rent in the
manuscript). This was all the more desirable, since the manu¬
script opens with Chapter XXXVII, followed by Chapters XLV
to XLVII, and only thereafter Chapters XXXVIII to XLIV. The
tables for the differential rent II involved the greatest amount
of work and so did the discovery that the third case of this class
of rent had not at all been analysed in Chapter XLIII, where
it belonged.

In the seventies Marx engaged in entirely new special
studies for this part on ground-rent. For years he had studied
the Russian originals of statistical reports inevitable after the
"reform” of 1861 in Russia and other publications on landowner-
ship, had taken extracts from these originals, placed at his
disposal in admirably complete form by his Russian friends, and
had intended to use them for a new version of this part. Owing
to the variety of forms both of landownership and of exploitation
of agricultural producers in Russia, this country was to play
the same role in the part dealing with ground-rent that England
played in Book I in connection with industrial wage-labour. He
was unfortunately denied the opportunity of carrying out this
plan.

Lastly, the seventh part was available complete, but only as
a first draft, whose endlessly involved periods had first to be
dissected to be made printable. There exists ouly the beginning
of the final chapter. It was to treat of the three major classes of
developed capitalist society— the landowners, capitalists and
wage-labourers — corresponding to the three great forms of rev¬
enue, ground-rent, profit and wages, and the class struggle, an
inevitable concomitant of their existence, as the actual conse¬
quence of the capitalist period. Marx used to leave such concluding
summaries until the final editing, just before going to press,
when the latest historical developments furnished him with
unfailing regularity with proofs of the most laudable timeliness
for his theoretical propositions.

Citations and proofs illustrating his statements are, as in tho
second volume, considerably less numerous than in the first.
Quotations from Book I refer to pages in the 2nd and 3rd editions.
Wherever the manuscript refers to theoretical statements of

Preface

earlier economists, the name alone is given as a rule, and the
quotations were to be added during the final editing. Of course,
I had to leave this as it was. There are only four parliamentary
reports, but these are abundantly used. They are the following:

1) Reports from Committees (of the Lower House), Volume
VIII, Commercial Distress, Volume II, Part I. 1847-48. Minutes
of Evidence.— Quoted as Commercial Distress 1847-48.

2) Secret Committee of the House of Lords on Commercial
Distress 1847. Report printed in 1848. Evidence printed in 1857
(because considered too compromising in 1848).— Quoted as
C. D. 1848/57.

3) Report: Bank Acts, 1857.— Ditto, 1858.— Reports of the
Committee of the Lower House on the Effect of the Bank Acts
of 1844 and 1845. With evidence. — Quoted as: B. A. (also as
B. C.) 1857 or 1858.

I am going to start on the fourth volume— the history of the
theory of surplus-value— as soon as it is in any way possible.

In the preface to the second volume of Capital I had to square
accounts with the gentlemen who raised a hue and cry at the time
because they fancied to have discovered “in Rodbertus the secret
source and superior predecessor of Marx”. I offered them an
opportunity to show “what the economics of a Rodbertus can
accomplish"; I defied them to show “in which way an equal aver¬
age rate of profit can and must come about, not only without a
violation of the law of value, but on the very basis of it”. These
same gentlemen who for either subjective or objective, but as a
rule anything but scientific reasons were then lionising the brave
Rodbertus as an economic star of the first magnitude, have with¬
out exception failed to' furnish an answer. However, other people
have thought it worth their while to occupy themselves with the
problem.

In his critique of the second volume ( Conrads Jahrbucher,
XI, 1885, S. 452-65), Professor Lexis took up the question, al¬
though he did not care to offer a direct solution. He says: “The
solution of the contradiction” (between the Ricardo-Marxian law
of value and an equal average rate of profit) “is impossible if the
various classes of commodities are considered individualhj and if
their value is to be equal to their exchange-value, and the latter
equal or proportional to their price. ” According to him, the
solution is only possible if “we cease measuring the value of indi¬
vidual commodities according to labour, and consider only the pro-

PREFACE

duction of commodities as a whole and their distribution among
the aggregate classes of capitalists and workers.... The working
class receives but a certain portion of the total product,... the
other portion, which falls to the share of the capitalist class,
represents the surplus-product in the Marxian sense, and accord¬
ingly ... the surplus-value. Then the members of the capitalist
class divide this total surplus-value among themselves not in
accordance with the number of workers employed by them, but
in proportion to the capital invested by each, the land also being
accounted for as capital-value.” The Marxian ideal values deter¬
mined by units of labour incorporated in the commodities do not
correspond to prices but may be “regarded as points of departure
of a shift which leads to the actual prices. Tho latter depend on
the fact that equal sums of capital demand equal profits.” For
this reason some capitalists will secure prices higher than the
ideal values for their commodities, and others will secure lower
prices. “But since the losses and gains of surplus-value balance
one another within the capitalist class, the total amount of the
surplus-value is the same as it would be if all prices were
proportional to the ideal values.”

It is evident that the problem has not in any way been solved
here, but has, though somewhat loosely and shallowly, been
on the whole correctly formulated. And this is, indeed, more
than we could have expected from a man who, like the above
author, takes a certain pride in being a “vulgar economist” .It
is really surprising when compared with the handiwork of other
vulgar economists, which we shall later discuss. Lexis’s vulgar
economy is, anyhow, in a class of its own. He says that capital
gains might, at any rate, be derived in the way indicated by Marx,
but that nothing compels one to accept this view. On the contrary.
Vulgar economy, he says, has at least a more plausible explana¬
tion, namely: “The capitalist sellers, such as the producer of raw
materials, the manufacturer, the wholesale dealer, and the retail
dealer, all make a gain on their transactions by selling at a price
higher than the purchase price, thus adding a certain percentage
to the price they themselves pay for the commodity. The worker
alone is unable to obtain a similar additional value for his com¬
modity; he is compelled by reason of his unfavourable condition
vis-a-vis the capitalist to sell his labour at the price it costs him,
that is to say, for the essential means of his subsistence.... Thus,
these additions to prices retain their full impact with regard to
the buying worker, and cause the transfer of a part of the value
of the total product to the capitalist class.”

Preface

One need not strain his thinking powers to see that this
explanation for the profits of capital, as advanced by “vulgar
economy, ” amounts in practice to the same thing as the Marxian
theory of surplus-value; that the workers are in just the same
“unfavourable condition” according to Lexis as according to
Marx; that they are just as much the victims of swindle because
every non-worker can sell commodities above price, while the
worker cannot do so; and that it is just as easy to build up an at
least equally plausible vulgar socialism on the basis of this theory,
as that built in England on the foundation of J evons ’s and Menger ’s
theory of use-value and marginal utility. I even suspect that
if Mr. George Bernard Shaw had been familiar with this theory
of profit, he would have likely fallen to with both hands, discard¬
ing Jevons and Karl Menger, to build anew the Fabian church
of the future upon this rock.

In reality, however, this theory is merely a paraphrase of the
Marxian. What defrays all the price additions? It is the workers’
“total product”. And this is due to the fact that the commodity
“labour”, or, as Marx has it, labour-power, has to be sold below its
price. For if it is a common property of all commodities to be
sold at a price higher than their cost of production, with labour
being the sole exception since it is always sold at the cost of
production, then labour is simply sold below the price that rules
in this world of vulgar economy. Hence the resultant extra profit
accruing to the capitalist, or capitalist class, arises, and can
only arise, in the last analysis, from the fact that the worker,
after reproducing the equivalent for the price of his labour-power,
must produce an additional product for which he is not paid —
i.e., a surplus-product, a product of unpaid labour, or surplus-
value. Lexis is an extremely cautious man in the choice of his
terms. He does not say anywhere outright that the above is his
own conception. But if it is, it is plain as day that we are not
dealing with one of those ordinary vulgar economists, of whom
he says himself that every one of them is “at best only a hopeless
idiot” in Marx’s eyes, but with a Marxist disguised as a vulgar
economist. Whether this disguise has occurred consciously or
unconsciously is a psychological question which does not interest
us at this point. Whoever would care to investigate this, might
also probe how a man as shrewd as Lexis undoubtedly is, could
at one time defend such nonsense as bimetallism.

The first to really attempt an answer to the question was Dr.
Conrad Schmidt in his pamphlet entitled Die Durchschnittsprofit-
rate auf Grand lage des Marx' schen Werthgesetzes, Stuttgart,

KAIMTAIb

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Title page of the first Russian edition of Vol. Ill, I, of Capital

(Reduced)

PREFACE

Dietz, 1889. Schmidt seeks to reconcile the details of the formation
of market-prices with both the law of value and with the average
rate of profit. The industrial capitalist receives in his product,
first, an equivalent of the capital he has advanced, and, second, a
surplus-product for which he has paid nothing. But to obtain a
surplus-product he must advance capital to production. That is,
he must apply a certain quantity of materialised labour to be able
to appropriate this surplus-product. For the capitalist, therefore,
the capital he advances represents the quantity of materialised
labour socially necessary for him to obtain this surplus-product.
This applies to every industrial capitalist. Now, since commodi¬
ties are mutually exchanged, according to the law of value,
in proportion to the labour socially necessary for their production,
and since, as far as the capitalist is concerned, the labour necessa¬
ry for the manufacture of the surplus-product happens to be past
labour accumulated in his capital, it follows that surplus-products
are exchanged in proportion to the sums of capital required
for their production, and not in proportion to the labour actually
incorporated in them. Hence the share of each unit of capital is
equal to the sum of all produced surplus-values divided by the
sum of the capitals expended in production. Accordingly, equal sums
of capital yield equal profits in equal time spans, and this is
accomplished by adding the cost-price of the surplus-product so.
calculated, i.e., the average profit, to the cost-price of the paid
product and by selling both the paid and unpaid product at this
increased price. The average rate of profit takes shape in spite
of average commodity-prices being determined, as Schmidt holds,
by the law of value.

The construction is extremely ingenious. It is completely pat¬
terned after the Hegelian model, but like the majority of
Hegelian constructions it is not correct. Surplus-product or paid
product, makes no difference. If the law of value is also to he directly
valid for the average prices, both of them must he sold at prices
proportionate to the socially necessary labour required and ex¬
pended in producing them. The law of value is aimed from the
first against the idea derived from the capitalist mode of thought
that accumulated labour of the past, which comprises capital,
is not merely a certain sum of finished value, but that, because
a factor in production and the formation of profit, it also pro¬
duces value and is hence a source of more value than it has itself;
it establishes that living labour alone possesses this faculty.
It is well known that capitalists expect equal profits proportion¬
ate to their capitals and regard their advances of capital as a

PREFACE

sort of cost-price of their profits. But if Schmidt utilises this
conception as a means of reconciling prices based on the average
rate of profit with the law of value, he repudiates the law of value
itself by attributing to it as one of its co-determinative factors
a conception with which the law is wholly at variance.

Either accumulated labour creates value the same as living
labour. In that case the law of value does not apply.

Or, it does not create value. In that case Schmidt’s demonstra¬
tion is incompatible with the law of value.

Schmidt strayed into this bypath when quite close to the solu¬
tion, because he believed that he needed nothing short of a mathe¬
matical formula to demonstrate the conformance of the average
price of every individual commodity with the law of value. But
while on the wrong track in this instance, in the immediate prox¬
imity of the goal, the rest of his booklet is evidence of the under¬
standing with which he drew further conclusions from the first
two volumes of Capital . His is the honour of independently find¬
ing the correct explanation developed by Marx in the third part of
the third volume for the hitherto inexplicable sinking tendency
of the rate of profit, and, similarly, of explaining the derivation
of commercial profit out of industrial surplus-value, and of making
a great number of observations concerning interest and ground-
rent, in which he anticipates ideas developed by Marx in the fourth
and fifth parts of the third volume.

In a subsequent article (Neue Zeit, 1892-93, Nos. 3 and 4),
Schmidt takes a different tack in his effort to solve the problem.
He contends that it is competition which produces the average
rate of profit by causing the transfer of capital from branches
of production with under-average profit to branches with above-
average profit. It is not a revelation that competition is the great
equaliser of profits. But now Schmidt tries to prove that this
levelling of profits is identical with a reduction of the selling price
of commodities in excess supply to a magnitude of value which
society can pay for them according to the law of value. Marx’s
analyses in the book itself are ample evidence why this way, too,
could not lead to the goal.

After Schmidt P. Fireman tackled the problem ( Conrads Jahr -
biicher, dritte Folge, III, S. 793). I shall not go into his remarks
on other aspects of the Marxian analysis. They rest upon the false
assumption that Marx wishes to define where he only investigates,
and that in general one might expect fixed, cut-to-measure, once
and for all applicable definitions in Marx’s works. It is self-
evident that where things and their interrelations are conceived,

PREFACE

not as fixed, but as changing, their mental images, the ideas,
are likewise subject to change and transformation; and they are
not encapsulated in rigid definitions, hut are developed in their
historical or logical process of formation. This makes clear, of
course, why in the beginning of his first book Marx proceeds from
the simple production of commodities as the historical premise,
ultimately to arrive from this basis to capital — why he proceeds
from the simple commodity instead of a logically and historically
secondary form— from an already capitalistically modified com¬
modity. To be sure, Fireman positively fails to see this. These
and other side-issues, which could give rise to still other diverse
objections, are better left by the wayside, while we go on forth¬
with to the gist of the matter. While theory teaches Fireman
that at a given rate of surplus-value the latter is proportional
to the labour-power employed, he learns from experience that
at a given average rate of profit, profit is proportional to the total
capital employed. He explains this by saying that profit is merely
a conventional phenomenon (which means in his language that
it belongs to a definite social formation with which it stands and
falls). Its existence is simply tied up with capital. The latter,
provided it is strong enough to secure a profit for itself, is com¬
pelled by competition also to secure for itself a rate of profit
equal for all sums of capital. Capitalist production is simply
impossible without an equal rate of profit. Given this mode of
production, the quantity of profit for the individual capitalist
can, at a certain rate of profit, depend only on the magnitude
of his capital. On the other hand, profit consists of surplus-value,
of unpaid labour. But how is surplus-value, whose magnitude
hinges upon the degree of labour exploitation, transformed into
profit, whose magnitude depends upon the amount of the capital
employed? “Simply by selling commodities above their value
in all branches of production in which the ratio between ... con¬
stant and variable capital is greatest; but this also implies that
commodities are sold below their value in those branches of
production in which the ratio between constant and variable
capital=c : v is smallest, and that commodities are sold at their
true value only in branches in which the ratio of c : v represents
a certain mean figure.... Is this discrepancy between individual
prices and their respective values a refutation of the value prin¬
ciple? By no means. For since the prices of some commodities
rise above their value as much as the prices of others fall below
it, the total sum of prices remains equal to the total sum of
values ... in the end this incongruity disappears. ” This incongruity

PREFACE

is a “disturbance”; “however, in the exact sciences it is not
customary to regard a predictable disturbance as a refutation
of a law”.

On comparing the relevant passages in Chapter IX with the
above, it will he seen that Fireman has indeed placed his finger
on the salient point. But the undeservedly cool reception of his
able article shows how many interconnecting links would still
be needed even after this discovery to enable Fireman to work
out a full and comprehensive solution. Although many were in¬
terested in this problem, they were all still fearful of getting their
fingers burnt. And this is explained not only by the incomplete
form in which Fireman left his discovery, but also by the un¬
deniable faultiness of both his conception of the Marxian analysis
and of his own general critique of the latter, based as it wras on
his misconception.

Whenever there is a chance of making a fool of himself over some
difficult matter, Herr Professor Julius Wolf, of Zurich, never fails
to do so. He tells us ( Conrads Jahrbiicher , 1891, dritte Folge, II,
S. 352 and following) that the entire problem is resolved in rel¬
ative surplus-value. The production of relative surplus-value rests
on the increase of constant capital vis-a-vis variable capital. “A
plus in constant capital presupposes a plus in the productive
power of the labourers. Since this plus in productive power (by
way of lowering the worker’s cost of living) produces a plus in
surplus-value, a direct relation is established between the in¬
creasing surplus-value and the increasing share of constant capital
in total capital. A plus in constant capital indicates a plus in the
productive power of labour. With variable capital remaining
the same and constant capital increasing, surplus-value must
therefore, in accordance with Marx, increase as well. This wras
the problem presented to us. ”

True, Marx says the very opposite in a hundred places in the
first book; true, the assertion that, according to Marx, when var¬
iable capital shrinks, relative surplus-value increases in propor¬
tion to the increase in constant capital, is so astounding that it
puts to shame all parliamentary declamation; true, Herr Julius
Wolf demonstrates in his every line that he does not in the least
understand, be it relatively or absolutely, the concepts of relative
or absolute surplus-value; to be sure he says himself that “at first
glance one seems really to be in a nest of incongruities”, which, by
the way, is the only true statement in his entire article. But what
does all that matter? Herr Julius Wolf is so pro.ud of his brilliant
discovery that he cannot refrain from bestowing posthumous

PREFACE

praise on Marx for it and from extolling his own fathomless
nonsense as a “new proof of the keen and far-sighted way his
(Marx’s) system of criticism of capitalist economy is set forth”.

But now comes the choicest bit of all. Herr Wolf says: “Ricardo
has likewise claimed that an equal investment of capital yielded
equal surplus-value (profit), just as the same expenditure of
labour created the same surplus-value (as regards its quantity).
And the question now was how the one agreed with the other.
But Marx has refused to accept this way of putting the problem.
He has proved beyond a doubt (in the third volume) that the second
statement was not necessarily a consequence of the law of value,
that it even contradicted his law of value and should therefore ...
be forthwith repudiated.” And thereupon Wolf probes who of
us two, Marx or I, had made a mistake. It does not occur to him,
naturally, that it is he who is groping in the dark.

I should offend my readers and fail to see the humour of the
situation if I were to waste a single word on this choice morsel.
I shall only add that his audacity in using the opportunity to
report the ostensible gossip among professors that Conrad Schmidt’s
above-named work was “directly inspired by Engels” matches the
audacity with which he dared to say at one time what “Marx has
proved beyond a doubt in the third volume.” Herr Julius Wolf!
It may be customary in the world in which you live and strive for
the man who publicly poses a problem to others to acquaint his
close friends on the sly with its solution. I am quite prepared to
believe that you are capable of this sort of thing. But that a man
need not stoop to such shabby tricks in my world is proved by the
present preface.

No sooner had Marx died than Mr. Achille Loria hastened to
publish an article about him in the Nuova Antologia (April 1883).
To begin with, a biography brimming with misinformation, fol¬
lowed by a critique of public, political and literary work. He
falsifies Marx’s materialist conception of history and distorts it
with an assurance that bespeaks a great purpose. And this purpose
was eventually carried out. In 1886, the same Mr. Loria published
a book, La teoria economica della constltuzione politica, in which
he announced to his astounded contemporaries that Marx’s con¬
ception of history, so completely and purposefully misrepresented
by him in 1883, was his own discovery. To be sure, the Marxian,
theory is reduced in this book to a rather Philistine level, and the
historical illustrations and proofs abound in blunders which wrould
never be tolerated in a fourth-form boy. But what does that mat¬
ter? The discovery that political conditions and events are every-

PREFACE

where invariably explained by corresponding economic conditions
was, as is herewith demonstrated, not made by Marx in 1845,
but by Mr. Loria in 1886. At least be has happily convinced his
countrymen o! this, and, after his book appeared in French,
also some Frenchmen, and can now' pose in Italy as the author
of a new epoch-making theory of history until the Italian Social¬
ists find time to strip the illustrious Loria of his stolen peacock
feathers.

But this is just a sample of Mr, Loria 's style. He assures us that
all Marx’s theories rest on conscious sophistry ( un consaputo so-
fisma); that Marx did not stop at paralogisms even when he knew
them to be paralogistns ( sapendoli tali), etc. And after thus im¬
pressing the necessary upon his readers with a series of similar con¬
temptible insinuations, so that they should regard Marx as an
unprincipled upstart a la Loria who achieves his little effects
by the same wretched humbug as our professor from Padua, he
reveals an important secret to them, and thereby takes us back
to the rate of profit.

Mr. Loria says: According to Marx, the amount of surplus-value
(which Mr. Loria here identifies with profit) produced in a capitalist
industrial establishment should depend on the variable capital
employed in it, since constant capital does not yield profit. But
this Is contrary to fact. For in practice profit does not depend on
variable, but on total capital. And Marx himself recognises this
(Buch I, Kap. XI*) and admits that on the surface facts appear
to contradict his theory. But how does he get around this con¬
tradiction? He refers his readers to an as yet unpublished sub¬
sequent volume. Loria has already told his readers about this
volume that he did not believe Marx had ever entertained the
thought of writing it, and now' exclaims triumphantly: “I have
not been wrong in contending that this second volume, which
Marx always flings at his adversaries without it ever appearing,
might very well have been a shrewd expedient applied by Marx
whenever scientific arguments failed him (un ingegnoso spediente
idealo dal Marx a sostituzione degli argomenti scientifici).'’ And
whosoever is not convinced after this that Marx stands in the
same class of scientific swindlers as I’illustre Loria, is past all
redemption.

We have at least learned this much: According to Mr. Loria,
the Marxian theory of surplus-value is absolutely incompatible

• English edition: Karl Marx, Capital, Vol. I, Ch. XIII, Moscow', 1954.
—Ed.

PREFACE

with the existence of a general equal rate of profit. Then, there
appeared the second volume and therewith my public challenge
precisely on this very point. If Mr. Loria had been one of us dif¬
fident Germans, he would have experienced a certain degree of
embarrassment. But he is a cocky southerner, coming from a hot
climate, where, as he can testify, cool nerve is a natural require¬
ment. The question of the rate of profit has been publicly put.
Mr. Loria has publicly declared it insoluble. And for this very
reason he is now going to outdo himself by publicly solving it.

This miracle is accomplished in Conrads Jahrbiicher, neue Folge,
Bucli XX, S. 272 and following, in an article dealing with Conrad
Schmidt’s already cited pamphlet. After Loria learned from
Schmidt how commercial profit was made, he suddenly saw day¬
light. “Since determining value by means of labour-time is to the
advantage of those capitalists who invest a greater portion of
their capital in wages, the unproductive” (read commercial)
“capital can derive a higher interest” (read profit) “from these
privileged capitalists and thus bring about an equalisation be¬
tween the individual industrial capitalists.... For instance, if each
of the industrial capitalists A, B, C uses 100 working-days and
0, 100, 200 constant capital respectively in production, and if
the wages for 100 working-days amount to 50 working-days,
then each receives a surplus-value of 50 working-days, and the
rate of profit is 100% for the first, 33,3% for the second, and
20% for the third capitalist. But if a fourth capitalist D accumu¬
lates an unproductive capital of 300, which claims an interest”
(profit) “equal in value to 40 working-days from A, and an interest
of 20 w’orking-days from B, then the rate of profit of capitalists
A and B will sink to 20%, just as that of C, while D with his
capital of 300 receives profit of 60, or a rate of profit of 20%, the
same as the other capitalists.”

With such astonishing dexterity, I'illustre Loria solves by
sleight of hand the question which he had declared insoluble ten
years previously. Unfortunately, he did not let us into the secret
wherefrom the “unproductive capital” obtained the power to
squeeze out of the industrialists their extra profit in excess of
the average rate of profit, and to retain it in its own pocket, just
as the landowner pockets the tenant’s surplus-profit as ground-
rent. Indeed, according to him it would be the merchants wdio
would raise a tribute analogous to ground-rent from the indus¬
trialists, and would thereby bring about an average rate of profit.
Commercial capital is indeed a very essential factor in producing
the general rate of profit, as nearly everybody knows. But only

PREFACE

a literary adventurer who in his heart sneezes at political
economy, can venture the assertion that it has the magic power to
absorb all surplus-value in excess of the general rate of profit
even before this general rate has taken shape, and to convert it
into ground-rent for itself without, moreover, even having need
to do with any real estate. No less astonishing is the assertion
that commercial capital manages to discover the particular
industrialists, whose surplus-value just covers the average rate
of profit, and that it considers it a privilege to mitigate the lot
of these luckless victims of the Marxian law of value to a certain
extent by selling their products gratis for them, without asking
as much as a commission for it. What a mountebank one must
be to imagine that Marx had need to resort to such miserable
tricks!

But it is not until we compare him with his northern compet¬
itors, for instance with Herr Julius Wolf, who was not born yes¬
terday either, that the illustrious Loria shines in his full glory.
What a yelping pup Herr Wolf appears even in his big volume
on Sozialismus und kapitalistische Gesellschaftsordnung, alongside
the Italian! How awkward, I am almost tempted to say modest,
he appears beside the rare confidence of the maestro who takes
it for granted that Marx, neither more nor less than other people,
was as much a sophist, paralogist, humbug and mountebank as
Mr. Loria himself— that Marx took in the public with the prom¬
ise of rounding out his theory in a subsequent volume whenever
he was in a difficult position, knowing full well that he neither
could nor ever w'ould write it. Boundless nerve coupled with a
flair for slipping like an eel through impossible situations, a
heroic contempt for pummellings received, hasty plaggiarism of
other people’s accomplishments, importunate and fanfaronading
advertising, spreading his fame by means of a chorus of friends —
who can equal him in all this?

Italy is the land of classicism. Ever since the great era when
the dawn of modern times rose there, it has produced magnificent
characters of unequalled classic perfection, from Dante to Gari¬
baldi. But the period of its degradation and foreign domination
also bequeathed it classic character-masks, among them two
particularly clear-cut types, that of Sganarelle and Dulcamara.
The classic unity of both is embodied in our illustre Loria.

In conclusion I must take my readers across the Atlantic. Dr.
(Med.) George C. Stiebeling , of New York, has also found a solu¬
tion to the problem, and a very simple one. So simple, indeed,
that no one either here, or there, took him seriously. This aroused

PREFACE

his ire, and he complained bitterly about the injustice of it in
an endless stream of pamphlets and newspaper articles appearing
on both sides of the great water. He was told in the Neue Zeit
that his entire solution rested on a mathematical error. But this
could scarcely disturb him. Marx had also made mathematical
errors, and was yet right in many things. Let us then take a look
at Dr. Stiebeling’s solution.

“I take two factories working with equal capitals for an equal
length of time, but with a different ratio of constant and variable
capitals. I make the total capital (c+v)=y, and the difference
in the ratio of the constant and variable capital=x; For factory
It y=c+v, for factory II, y = (c— x)+(v-f x). Therefore the

rate of surplus-value for factory I =-^-, and for factory 11 = ^-^.

Profit (p) is what I call the total surplus-value (s) by which the
total capital y, or c+v, is augmented in the given time; thus,

p=s. Hence, the rate of profit for factory I = y,or^~ and for

factory II it is also ' or - , — r, i.e., it is also = - . The...

y (c-x)+(v-f x) c-pv

problem thus resolves itself in such a way that, on the basis of

the law of value, with equal capital and equal time, but unequal

quantities of living labour, a change in the rate of surplus-value

causes the equalisation of an average rate of profit.” (G. C. Stiebeling,

Das Werthgesetz und die Profitrate , New York, John Heinrich.)

However pretty and revealing the above calculation may be,
we are compelled to ask Dr. Stiebeling one question: How does
he know that the sum of surplus-value produced by factory I is
exactly equal to the sum of the surplus-value produced by fac¬
tory II? He states explicitly that c, v, y and x, that is, all the
other factors in the calculation, are the same for both factories,
but makes no mention of s. It does not by any means follow from
the fact that he designated both of the above-mentioned quanti¬
ties of surplus-value algebraically with s. Rather, it is just the
thing that has to be proved, since Mr. Stiebeling without further
ado also identifies profit p with the surplus-value. Now there are
just two possible alternatives. Either the two s’s are equal, both
factories produce equal quantities of surplus-value, and therefore
also equal quantities of profit, since both capitals are equal.
In that case Mr. Stiebeling has from the start taken for granted
what he was really called upon to prove. Or, one factory produces
more surplus-value than the other, in which case his entire cal¬
culation tumbles about his ears.

PREFACE

Mr. Stiebeling spared neither pains nor money to build moun¬
tains of calculations upon this mathematical error, and to exhibit
them to the public. I can assure him, for his own peace of mind,
that they are nearly all equally wrong, and that in the exceptional
cases when this is not so, they prove something entirely different
from what he set out to prove. He proves, for instance, by com¬
paring U.S. census figures for 1870 and 1880 that the rate of profit
has actually fallen, but interprets it wrongly and assumes that
Marx’s theory of a constantly stable rate of profit should be cor¬
rected on the basis of experience. Yet it follows from the third
part of the present third book that this Marxian “stable rate of
profit” is purely a figment of Mr. Stiebeling ’s imagination, and
that the tendency for the rate of profit to fall is due to circum¬
stances which are just the reverse of those indicated by Dr.
Stiebeling. No doubt Dr. Stiebeling has the best intentions, but
when a man wants to deal with scientific questions he should
above all learn to read the works he wishes to use just as the author
had written them, and above all without reading anything into
them that they do not contain.

The outcome of the entire investigation shows again with ref¬
erence to this question as well that it is the Marxian school alone
which has accomplished something. If Fireman and Conrad
Schmidt read this third book, each one, for his part, may well
be satisfied with his own work.

London, October 4, 1894

Frederick Engels

2— 2494

Book III
THE PROCESS

OF CAPITALIST PRODUCTION
AS A WHOLE

PART I

THE CONVERSION OF SURPLUS-VALUE
INTO PROFIT

AND OF THE RATE OF SURPLUS- VALUE
INTO THE RATE OF PROFIT

CHAPTER I

COST-PRICE AND PROFIT

In Book I we analysed the phenomena which constitute the
process of capitalist production as such, as the immediate pro¬
ductive process, with no regard for any of the secondary effects
of outside influences. But this immediate process of production
does not exhaust the life span of capital. It is supplemented in
the actual world by the process of circulation, which was the ob¬
ject of study in Book II. In the latter, namely in Part III, which
treated the process of circulation as a medium for the process
of social reproduction, it developed that the capitalist process
of production taken as a whole represents a synthesis of the proc¬
esses of production and circulation. Considering what this third
book treats, it cannot confine itself to general reflection relative
to this synthesis. On the contrary, it must locate and describe
the concrete forms which grow out of the movements of capital
as a whole. In their actual movement capitals confront each other
in such concrete shape, for which the form of capital in the imme¬
diate process of production, just as its form in the process of
circulation, appear only as special instances. The various forms
of capital, as evolved in this book, thus approach step by step
the form which they assume on the surface of society, in the action
of different capitals upon one another, in competition, and in
the ordinary consciousness of the agents of production themselves.

The value of every commodity produced in the capitalist way
is represented in the formula: C=c+v-fs. If we subtract surplus-
values from this value of the product there remains a bare

CONVERSION OF SURPLUS-VALUE INTO PROFIT

equivalent or a substitute value in goods, for the capital-value
c+v expended in the elements of production.

For example, if the production of a certain article requires
a capital outlay of £500, of which £20 are for the wear and tear
of instruments of production, £380 for the materials of produc¬
tion, and £100 for labour-power, and if the rate of surplus-value
is 100%, then the value of the product = 400c-j-100v-f-1008 = £600.

After deducting the surplus-value of £100, there remains a com¬
modity-value of £500 which only replaces the expended capital
of £500. This portion of the value of the commodity, which re¬
places the price of the consumed means of production and labour-
power, only replaces what the commodity costs the capitalist
himself. For him it, therefore, represents the cost-price of the
commodity.

What the commodity costs the capitalist and its actual pro¬
duction cost are two quite different magnitudes. That portion
of the commodity-value making up the surplus-value does not
cost the capitalist anything simply because it costs the labourer
unpaid labour. Yet, on the basis of capitalist production, after
the labourer enters the production process he himself constitutes
an ingredient of operating productive capital, which belongs
to the capitalist. Therefore, the capitalist is the actual producer
of the commodity. For this reason the cost-price of the commodity
necessarily appears to the capitalist as the actual cost of the com¬
modity. If we take k to be the cost-price, the formula C=c+v-fs
turns into the formula C=k-j-s, that is, the commodity-value =
= cost-price -{-surplus-value.

The grouping of the various value portions of a commodity
which only replace the value of t^ae capital expended in its pro¬
duction under the head of cost-price expresses, on the one hand,
the specific character of capitalist production. The capitalist cost
of the commodity is measured by the expenditure of capital, while
the actual cost of the commodity is measured by the expenditure
of labour. Thus, the capitalist cost-price of the commodity differs
in quantity from its value, or its actual cost-price. It is smaller
than the value of the commodity, because, with C=k+s, it is
evident that k=C— s. On the other hand, the cost-price of a com¬
modity is by no means simply a category which exists only in cap¬
italist book-keeping. The individualisation of this portion of
value is continually manifest in practice in the actual production
of the commodity, because it has ever to be reconverted from
its commodity-form by way of the process of circulation into the
form of productive capital, so that the cost-price of the commodity

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(Reduced)

CONVERSION OF SURPLUS-VALUE INTO PROFIT

always must repurchase the elements of production consumed in
its manufacture.

The category of cost-price, on the other hand, has nothing to do
with the formation of commodity-value, or with the process of
self-expansion of capital. When I know that of the value of a
commodity worth £600, five-sixths, or £500, represent no more
than an equivalent of the capital of £500 consumed in its produc¬
tion and that it can therefore suffice only to repurchase the mate¬
rial elements of this capital, I know nothing as yet either of the
way in which these five-sixths of the value of the commodity,
which represent its cost-price, are produced, or about the way
in which the last sixth, which constitutes its surplus-value, was
produced. The investigation will show, however, that in capital¬
ist economics the cost-price assumes the false appearance of a
category of value production itself.

To return to our example. Suppose the value produced by one
labourer during an average social working-day is represented by
a money sum of 6s.=6M. Then the advanced capital of £500=
=400c+100v represents a value produced in 1 ,6662/a ten-hour
working-days, of which l,3331/a working-days are crystallised
in the value of the means of production = 400c, and 333VS working-
days are crystallised in the value of labour-power=100y. Having
assumed a rate of surplus-value of 100%, the production of the
commodity to be newly formed entails a labour expenditure =
= 100, +100g =666’/j ten-hour working-days.

We know, then (see Buch I, Kap. VII, S. 201/193*) that the
value of the newly created product of £600 is composed of 1) the
reappearing value of the constant capital of £400 expended for
means of production, and 2) a newly produced value of £200.
The cost-price of the commodity = £500 comprises the reappearing
400c and one-half of the newly produced value of £200 ( = 100v),
that is, two elements of the commodity-value which are of entirely
different origin.

Owing to the purposive nature of the labour expended during
666®/s ten-hour working-days, the value of the consumed means
of production amounting to £400 is transferred from these means
of production to the product. This previously existing value thus
reappears as a component part of the value of the product, but
is not created in the process of production of this commodity. It
exists as a component of the value of the commodity only because
it previously existed as an element of the invested capital. The

* English edition: Ch. IX, p. 212.— Ed.

COST-PRICE AND PROFIT

expended constant capital is therefore replaced by that portion of
the value of the commodity which this capital itself adds to that
value. This element of the cost-price, therefore, has a double mean¬
ing. On the one hand, it goes into the cost-price of the commodity,
because it is part of the commodity-value which replaces consumed
capital. And on the other hand, it forms an element of the com¬
modity-value only because it is the value of expended capital
or because the means of production cost so and so much.

It is quite the reverse in the case of the other element of the cost-
price. The 6662/, working-days expended in the production of the
commodity create a new value of £200. One portion of this new
value merely replaces the advanced variable capital of £100,
or the price of the labour-power employed. But this advanced
capital-value does not in any way go into the creation of the new
value. So far as the advance of capital is concerned, labour-power
counts as a value. But in the process of production it acts as the
creator of value. The place of the value of the labour-power that
obtains within the advanced capital is taken in the actually
functioning productive capital by living value-creating labour-
power itself.

The difference between these various elements of the commodity-
value, which together make up the cost-price, leaps to the eye
whenever a change takes place in the size of the value of either the
expended constant, or the expended variable, part of the capital.
Let the price of the same means of production, or of the constant
part of capital, rise from £400 to £600, or, conversely, let it fall
to £200. In the first case it is not only the cost-price of the com¬
modity which rises from £500 to 600C-H100V=£700, but also the
value of the commodity which rises from £600 to 600c-)-100v-f
+100g=£800. In the second case, it is not only the cost-price
which falls from £500 to 200c-f 100v = £300, but also the value of
the commodity which falls from £600 to 200c-j-100T + 1009 =
= £400. Since the expended constant capital transfers its own
value to the product, the value of the product rises or falls with
the absolute magnitude of that capital-value, other conditions
remaining equal. Assume, on the other hand, that, other cir¬
cumstances remaining unchanged, the price of the same amount
of labour-power rises from £100 to £150, or, conversely, that it
falls from £100 to £50. In the first case, the cost-price rises from
£500 to 400c+150v=£550, and falls in the second case from
£500 to 400c+50t=£450. But in either case the commodity-
value remains unchanged = £600; one time it is 400c+150t+50s,
and the other time, 400c+50v-|-150s. The advanced variable

CONVERSION OF SURPLUS-VALUE INTO PROFIT

capital does not add its own value to the product. The place of
its value is taken in the product rather by a new value created
by labour. Therefore, a change in the absolute magnitude of the
variable capital, so far as it expresses merely a change in the
price of labour-power, does not in the least alter the absolute
magnitude of the commodity-value, because it does not alter
anything in the absolute magnitude of the new value created
by living labour-power. Such a change rather affects only the
relative proportion of the two component parts of the new value,
of which one forms surplus-value and the other makes good the
variable capital and therefore passes into the cost-price of the
commodity.

The two elements of the cost-price, in the present case 400c4-
+ 100v, have only this in common that they are both parts of the
commodity-value that replace advanced capital.

But this true state of affairs necessarily appears reversed from
the standpoint of capitalist production.

The capitalist mode of production differs from the mode of
production based on slavery, among other things, by the fact
that in it the value, and accordingly the price, of labour-power
appears as the value, or price, of labour itself, or as wages (Buch I,
Kap. XVII*). The variable part of the advanced capital, therefore,
appears as capital expended in wages, as a capital-value which
pays for the value, and accordingly the price, of all the labour
expended in production. Let us assume, for instance, that an average
ten-hour social working-day is incorporated in a sum of money
amounting to 6 shillings. In that case the advance of a variable
capital of £100 represents the money expression of a value pro¬
duced in 333% tenLhour working-days. But this value, repre¬
senting purchased labour-power in the capital advanced, does not,
however, form a part of the actually functioning productive capi¬
tal. Its place in the process of production is taken by living
labour-power. If, as in our illustration, the degree of exploitation
of the latter is 100%, then it is expended during 666% ten-hour
working-days, and thereby adds to the product a new value
of £200. But in the capital advanced the variable capital of
£100 figures as capital invested in wages, or as the price
of labour performed during 666% ten-hour days. The sum of
£100 divided by 666% gives us 3 shillings as the price of a
ten-hour working-day, which is equal in value to the product of
five hours’ labour.

English edition: Ch. XIX. — Ed.

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(Reduced)

CONVERSION OF SURPLUS-VALUE INTO PROFIT

Now, if we compare the capital advanced on the one hand with
the commodity-value on the other, we find:

I. Capital advanced £500 = £400 of capital expended in means
of production (price of means of production) +£100 of cap¬
ital expended in labour (price of 6662/3 working-days, or
wages for same).

II. Value of commodities £600=£500 representing the cost-
price (£400 price of expended means of production+£100
price of expended G662/, working-days)+£100 surplus-value.

In this formula, the portion of capital invested in labour-power
differs from that invested in means of production, such as cotton
or coal, only by serving as payment for a materially different
element of production, but not by any means because it serves a
functionally different purpose in the process of creating commodity-
value, and thereby also in the process of the self-expansion
of capital. The price of the means of production reappears in the
cost-price of the commodities, just as it figured in the capital
advanced, and it does so because these means of production have
been purposively consumed. The price, or wages, for the 6662/3
working-days consumed in the production of these commodities
likewise reappears in the cost-price of the commodities just as
it has figured in the capital advanced, and also because this
amount of labour has been purposively expended. We see only
finished and existing values— the portions of the value of the
advanced capital which go into the making of the value of the
product — but not the element creating new values. The distinc¬
tion between constant and variable capital has disappeared.
The entire cost-price of £500 now has the double meaning that,
first, it is that portion of the commodity-value of £600 which
replaces the capital of £500 expended in the production of the
commodity; and that, secondly, this component of the commodity-
value exists only because it existed previously as the cost-price
of the elements of production employed, namely means of pro¬
duction and labour, i.e., as advanced capital. The capital-value
reappears as the cost-price of a commodity because, and in so far
as, it has been expended as a capital-value.

The fact that the various components of the value of the advanced
capital have been expended for materially different elements of
production, namely for instruments of labour, raw materials,
auxiliary materials, and labour, requires only that the cost-price
of the commodity must buy back these materially different ele¬
ments of production. So far as the formation of the cost-price is
concerned, however, only one distinction is appreciable, namely

COST-PRICE AND PROFIT

that between fixed and circulating capital. In our example we
have set down £20 for wear and tear of instruments of labour
(400c=£20 for depreciation of instruments of labour+£380 for
materials of production). Before the productive process the value
of these instruments of labour was, say, £1,200. After the commodi¬
ties have been produced it exists in two forms, the £20 as part
of the value of the commodity, and 1,200—20, or £1,180, as the
remaining value of the instruments of labour which, as before,
are in the possession of the capitalist; in other words, as an ele¬
ment of his productive, not of his commodity-capital. Materials
of production and wages, as distinct from means of labour, are
entirely consumed in the production of the commodity and thus
their entire value goes into that of the produced commodity.
We have seen how these various components of the advanced
capital assume the forms of fixed and circulating capital in rela¬
tion to the turnover.

Accordingly, the capital advanced=£l,680: fixed capital =
= £l,200+circulating capital=£480 (=£380 in materials of
production plus £100 in wages).

But the cost-price of the commodity only=£500 (£20 for the
wear and tear of the fixed capital, and £480 for circulating capital).

This difference between the cost-price of the commodity and the
capital advanced merely proves, however, that the cost-price of
the commodity is formed exclusively by the capital actually
consumed in its production.

Means of production valued at £1,200 are employed in produc¬
ing the commodity, but only £20 of this advanced capital-value
are lost in production. Thus, the employed fixed capital goes only
partially into the cost-price of the commodity, because it is only
partially consumed in its production. The employed circulating
capital goes entirely into the cost-price of the commodity, because
it is entirely consumed in production. But does not this only
prove that the consumed portions of the fixed and circulating
capital pass uniformly, pro rata to the magnitude of their values,
into the cost-price of the commodity and that this component
of the value of the commodity originates solely with the capital
expended in its production? If this were not so, it would be inex¬
plicable why the advanced fixed capital of £1,200 should not,
aside from the £20 which it loses in the productive process, also
contribute the other £1,180 which it does not lose.

This difference between fixed and circulating capital with
reference to the calculation of the cost-price, therefore, only con¬
firms the seeming origination of the cost-price from the expended

CONVERSION OF SURPLUS-VALUE INTO PROFIT

capital-value, or the price paid by the capitalist himself for the
expended elements of production, including labour. On the other
hand, so far as the formation of value is concerned, the variable
portion of capital invested in labour-power is here emphatically
identified under the head of circulating capital with constant
capital (that part of capital which consists of materials of pro¬
duction), and this completes the mystification of the self-expansion
process of capital.1

So far we have considered just one element of the value of com¬
modities, namely the cost-price. We must now turn also to the
other component of the value of commodities, namely the excess
over the cost-price, or the surplus-value. In the first place, then,
surplus-value is the excess value of a commodity over and above
its cost-price. But since the cost-price equals the value of the con¬
sumed capital, into whose material elements it is continually
reconverted, this excess value is an accretion in the value of
the capital expended in the production of the commodity and
returning by way of its circulation.

We have already seen earlier that, though s, the surplus-value,
springs merely from a change in the value of the variable capital v
and is, therefore, originally but an increment of variable capital,
after the process of production is over it nevertheless also forms
an increment of c-fv, the expended total capital. The formula
c+(v-|-s), which indicates that s is produced through the conver¬
sion of a definite capital-value v advanced for labour-power into
a fluctuating magnitude, i.e\, of a constant magnitude into a
variable one, may also bo represented as (c+v)-f s. Before produc¬
tion took place we had a capital of £500. After production is
completed we have the capital of £500 plus a value increment
of £100. 2

However, surplus-value forms an increment not only of the
portion of the advanced capital which goes into the self-expansion

1 In Book I (Kap. VII, 3, S. 216/206 If.) [English edition: Ch. IX, 3,
p. 225 ff .—Ed. ] we have given the example of N. W. Senior to show what con¬
fusion this may create in the mind of the economist.

2 “From what has gone before, we know that surplus-value is purely the
result of a variation in the value of v, of that portion of the capital which is
transformed into labour-power; consequently, v+s=v + Av (or v plus an
increment of v). But the fact that it is v alone that varies, and the condi¬
tions of that variation, are obscured by the circumstance that in consequence
of the increase in the variable component of the capital, there is also an
increase in the sum total of the advanced capital. It was originally £500,
and becomes £590.” (Buch I, Kap. VII, 1, S. 203/195.) [English edition: Ch.
IX, 1, p. 214 .-Ed.]

COST-PRICE AND PROFIT

process, but also of the portion which does not go into it. In other
words, it is an accretion not only to the consumed capital made
good out of the cost-price of the commodity, but to all the
capital invested in production. Before the production process we
had a capital valued at £1,680, namely £1,200 of fixed capital
invested in means of production, only £20 of which go into the
value of the commodity for wear and tear, plus £480 of circulating
capital in materials of production and wages. After the production
process we have £1,180 as the constituent element of the value
of the productive capital plus a commodity-capital of £600. By
adding these two sums of value we find that the capitalist now
has a value of £1,780. After deducting his advanced total capital
of £1,680 there remains a value increment of £100. The £100 of
surplus-value thus form as much of an increment in relation
to the invested £1,680 as to its fraction of £500 expended during
production.

It is now clear to the capitalist that this increment of value
springs from the productive processes undertaken with the capital,
that it therefore springs from the capital itself, because it is
there after the production process, while it is not there before
it. As for the capital consumed in production, the surplus-value
seems to spring equally from all its different elements of value con¬
sisting of means of production and labour. For all these elements
contribute equally to the formation of the cost-price. All of them
add their values, obtaining as advanced capital, to the value of
the product, and are not differentiated as constant and variable
magnitudes of value. This becomes obvious if we assume for a
moment that all the expended capital consisted either exclusively
of wages, or exclusively of the value of the means of production.
In the first case, we should then have the commodity-value of
500v-f 100a instead of the commodity-value of 400c+100v -f- 100s.
The capital of £500 laid out in wages represents the value of all
the labour expended in the production of the commodity-value
of £600, and for just this reason forms the cost-price of the entire
product. But the formation of this cost-price, whereby the value
of the expended capital is reproduced as a constituent part of
the value of the product, is the only process in the formation of
this commodity-value that is known to us. We do not know how
its surplus-value portion of £100 is formed. The same is true in
the second case, in which the commodity-value=500c+100s.
We know in both cases that surplus-value is derived from a given
value, because this value was advanced in the form of productive
capital, be it in the form of labour or of means of production.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

On the other hand, this advanced capital-value cannot form sur¬
plus-value for the reason that it has been expended and therefore
constitutes the cost-price of the commodity. Precisely because
it forms the cost-price of the commodity, it does not form any
surplus-value, but merely an equivalent, a value replacing the
expended capital. So far, therefore, as it forms surplus-value,
it does so not in its specific capacity as expended, but rather as
advanced, and hence utilised, capital. For this reason, the
surplus-value arises as much out of the portion of the advanced
capital which goes into the cost-price of the commodity as out of
the portion which does not. In short, it arises equally out of the
fixed and the circulating components of the utilised capital. The
aggregate capital serves materially as the creator of products,
the means of labour as well as the materials of production, and
the labour. The total capital materially enters into the actual
labour-process, even though only a portion of it enters the process
of self-expansion. This is, perhaps, the very reason why it con¬
tributes only in part to the formation of the cost-price, but totally
to the formation of surplus-value. However that may be, the
outcome is that surplus-value springs simultaneously from all
portions of the invested capital. This deduction may bo substan¬
tially abbreviated, by saying pointedly and concisely in the
words of Malthus: “The capitalist ... expects an equal profit upon
all the parts of the capital which he advances.”3

In its assumed capacity of offspring of the aggregate advanced
capital, surplus-value takes the converted form of profit. Hencb,
a certain value is capital when it is invested with a view to produc
ing profit,4 or, there is profit because a certain value was employed
as capital. Suppose profit is p. Then the formula C=c+v-f-s =
=k+s turns into the formula C=k+p, or the value of a commodi¬
ty = cost- price-f- profit.

The profit, such as it is represented here, is thus the same as
surplus-value, only in a mystified form that is nonetheless a
necessary outgrowth of the capitalist mode of production. The
genesis of the mutation of values that occurs in the course of the
production process, must be transferred from the variable portion
of the capital to the total capital, because there is no apparent
distinction between constant and variable capital in the assumed

3 Malthus, Principles of Political Economy, 2nd ed., London, 1836,

p. 268.

4 “Capital is that which is expended with a view to profit.” Malthus,
Definitions in Political Economy, London, 1827, p. 86.

COST-PRICE AND PROFIT

formation of the cost-price. Because at one pole the price of
labour-power assumes the transmuted form of wages, surplus-
value appears at the opposite pole in the transmuted form of
profit.

We have seen that the cost-price of a commodity is smaller than
its value. Since C = k+s, it follows that k=C — s. The formula
C = k+s reduces itself to C = k, or commodity-value =commodity
cost-price only if s=0, a case which never occurs on the basis of
capitalist production, although peculiar market conditions may
reduce the selling price of commodities to the level of, or even
below, their cost-price.

Hence, if a commodity is sold at its value, a profit is realised
which is equal to the excess of its value over its cost-price, and
therefore equal to the entire surplus-value incorporated in the
value of the commodity. But the capitalist may sell a commodity
at a profit even when he sells it below its value. So long as its
selling price is higher than its cost-price, though it may be lower
than its value, a portion of the surplus-value incorporated in it
is always realised, thus always yielding a profit. In our illustra¬
tion the value of the commodity is £600, and the cost-price £500.
If the commodity is sold at £510, 520, 530, 560 or 590, it is sold
respectively £90. 80, 70, 40, or 10 below its value. Yet a profit
of £10, 20, 30. 60, or 90 respectively is realised in its sale. There
is obviously an indefinite number of selling prices possible be¬
tween the value of a commodity and its cost-price. The greater
the surplus-value element of the value of a commodity, the greater
the practical range of these intermediate prices.

This explains more than just the everyday phenomena of compe¬
tition, such as certain cases of underselling, abnormally low com¬
modity-prices in certain lines of industry,5 etc. The fundamental
law of capitalist competition, which political economy had not
hitherto grasped, the law which regulates the general rate of
profit and the so-called prices of production determined by it,
rests, as we shall later see, on this difference between the value
and the cost-price of commodities, and on tne resulting possibility
of selling a commodity at a profit under its value.

The minimal limit of the selling price of a commodity is its cost-
price. If it is sold under its cost-price, the expended constituent
elements of productive capital cannot be fully replaced out of the
selling price. If this process continues, the value of the advanced

5 Cf Buch I, Kap. XVIII, 1, S. 571/561 ff. [English edition: Ch. XX,
1, p. 549 ff . — Ed ]

CONVERSION OF SURPLUS- VALUE INTO PROFIT

capital disappears. From this point of view alone, the capitalist
is inclined to regard the cost-price as the true inner value of the
commodity, because it is the price required for the bare conserva¬
tion of his capital. But there is also this, that the cost-price of a
commodity is the purchase price paid by the capitalist himself for
its production, therefore the purchase price determined by the pro¬
duction process itself. For this reason, the excess value, or the
surplus-value, realised in the sale of a commodity appears to the
capitalist as an excess of its selling price over its value, instead of
an excess of its value over its cost-price, so that accordingly the
surplus-value incorporated in a commodity is not realised through
its sale, but springs out of the sale itself. We have given this
illusion closer consideration in Book I (Kap. IV, 2*) (“Contra¬
dictions in the General Formula of Capital”), but revert here
for a moment to the form in which it was reaffirmed by
Torrens, among others, as an advance of political economy beyond
Ricardo.

“The natural price, consisting of the cost of production, or, in
other words, of the capital expended in raising or fabricating
commodities, cannot include the profit.... The farmer, we will
suppose, expends one hundred quarters of corn in cultivating his
fields, and obtains in return one hundred and twenty quarters.
In this case, twenty quarters, being the excess of produce above
expenditure, constitute the farmer’s profit; but it would be
absurd to call this excess, or profit, a part of the expenditure....
The master manufacturer expends a certain quantity of raw mate¬
rial, of tools and implements of trade, and of subsistence for
labour, and obtains in return a quantity of finished work. This
finished work must possess a higher exchangeable value than the
materials, tools, and subsistence, by the advance of which it
was obtained.” Torrens concludes therefrom that the excess of
the selling price over the cost-price, or profit, is derived from the
fact that the consumers, “either by immediate or circuitous
barter give some greater portion of all the ingredients of capital
than their production costs”.*

Indeed, the excess over a given magnitude cannot form a part
of this magnitude, and therefore the profit, the excess value of a
commodity over the capitalist’s expenditures, cannot form a part
of these expenditures. Hence, if no other element than the value

• English edition: Ch. V, 2 .—Ed.

• R. Torrens, An Ettay on the Production of Wealth, London, 1821,
pp. 51-53, and 349.

COST-PRICE AND PROFIT 39

advance of the capitalist enters into the formation of the value
of a commodity, it is inexplicable how more value should come
out of production than went into it, for something cannot come
out of nothing. But Torrens only evades this creation out of
nothing by transferring it from the sphere of commodity-produc¬
tion to that of commodity-circulation. Profit cannot come out
of production, says Torrens, for otherwise it would already be
contained in the cost of production, and there would not be a
surplus over this cost. Profit cannot come out of the exchange of
commodities, replies Ramsay, unless it already existed before
this exchange. The sum of the value of the exchanged products
is evidently not altered in the exchange of these products, whose
sum of value it is. It is the same before and after the exchange.
It should be noted here that Malthus refers expressly to the
authority of Torrens,7 although he himself has a different ex¬
planation for the sale of commodities above their value, or rather
has no explanation at all, since all arguments of this sort never,
in effect, fail to be reduced to the same thing as the once-famed
negative weight of phlogiston.

In a social order dominated by capitalist production even the
non-capitalist producer is gripped by capitalist conceptions. Bal¬
zac, who is generally remarkable for his profound grasp of reality,
aptly describes in his last novel, Les Paysans, how a petty peasant
performs many small tasks gratuitously for his usurer, whose good¬
will he is eager to retain, and how he fancies that he does not give
the latter something for nothing because his own labour does not
cost him any cash outlay. As for the usurer, he thus fells two
dogs with one stone. He saves the cash outlay for wages and
enmeshes the peasant, who is gradually ruined by depriving his
own field of labour, deeper and deeper in the spider-web of usury.

The thoughtless conception that the cost-price of a commodity
constitutes its actual value, and that surplus-value springs from
selling the product above its value, so that commodities would be
sold at their value if their selling price were to equal their cost-
price, i.e., if it were to equal the price of the consumed means of
production plus wages, has been heralded to the world as a newly
discovered secret of socialism by Proudhon with his customary
quasi-scientific chicanery. Indeed, this reduction of the value of
commodities to their cost-price is the basis of his People’s Bank.
It was earlier shown that the various constituent elements of the
value of a product may be represented in proportional parts of

7 Malthus, Definitions in Political Economy , London, 1853, pp. 70, 71.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

the product itself. For instance (Buch I, Kap. VII, 2, S. 211/203*),
if the value of 20 lbs. of yarn is 30 shillings— namely 24 shillings
of means of production, 3 shillings of labour-power, and 3 shil¬
lings of surplus-value — then this surplus-value may be represented
as 1/10 of the product=2 lbs. of yarn. Should these 20 lbs. of yarn
now be sold at their cost-price, at 27 shillings, then the purchaser
receives 2 lbs. of yarn for nothing, or the article is sold 1/10 below
its value. But the labourer has, as before, performed his surplus-
labour, only this time for the purchaser of the yarn instead of the
capitalist yarn producer. It would be altogether wrong to assume
that if all commodities were sold at their cost-price, the result
would really be the same as if they had all been sold above their
cost-price, but at their value. For even if the value of the labour-
power, the length of the working-day, and the degree of exploita¬
tion of labour were the same everywhere, the quantities of
surplus-value contained in the values of the various kinds of
commodities would be unequal, depending on the different organic
composition of the capitals advanced for their production.8

* English edition: Cli. IX, 2, pp. 220-21. — Ed.

* “The masses of value and of surplus-value produced by different capi¬
tals— the value of labour power being given and its degree of exploitation
being equal— vary directly as the amounts of the variable constituents of
these capitals, i.e., as their constituents transformed into living labour-
power.” (Much 1, Kap.’ IX, S. 312/303.) [English edition: Ch. XI, pp. 306-
07.— Ed. 1

CHAPTER II

THE RATE OF PROFIT

The general formula of capital is M — C— M'. In other words,
a sum of value is thrown into circulation to extract a larger sum
out of it. The process which produces this larger sum is capitalist
production. The process that realises it is circulation of capital.
The capitalist does not produce a commodity for its own sake,
nor for the sake of its use-value, or his personal consumption.
The product in which the capitalist is really interested is not
the palpable product itself, but the excess value of the product
over the value of the capital consumed by it. The capitalist
advances the total capital without regard to the different roles
played by its components in the production of surplus-value. He
advances all these components uniformly, not just to reproduce
the advanced capital, but rather to produce value in excess of
it. The only way in which he can convert the value of his advanced
variable capital into a greater value is by exchanging it for
living labour and exploiting living labour. But he cannot exploit
this labour unless he makes a simultaneous advance of the con¬
ditions for performing this labour, namely means of labour and
subjects of labour, machinery and raw materials, i.e., unless he
converts a certain amount of value in his possession into the form
of conditions of production; for he is a capitalist and can under¬
take the process of exploiting labour only because, being the
owner of the conditions of labour, he confronts the labourer as
the owner of only labour-power. As already shown in the first
book,* it is precisely the fact that non-workers own the means
of production which turns labourers into wage-workers and
non-workers into capitalists.

• English edition: Vol. I, pp. 1C8-G9. 714-16. — Ed.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

The capitalist does not care whether it is considered that he
advances constant capital to make a profit out of his variable
capital, or that he advances variable capital to enhance the value
of the constant capital; that he invests money in wages to raise
the value of his machinery and raw materials, or that he invests
money in machinery and raw materials to be able to exploit
labour. Although it is only the variable portion of capital which
creates surplus-value, it does so only if the other portions, the
conditions of production, are likewise advanced. Seeing that the
capitalist can exploit labour only by advancing constant capital
and that he can turn his constant capital to good account only
by advancing variable capital, he lumps them all together in
his imagination, and much more so since the actual rate of his
gain is not determined by its proportion to the variable, but to
the total capital, not by the rate of surplus-value, but by the
rate of profit. And the latter, as we shall see, may remain the
same and yet express different rates of surplus-value.

The costs of the product include all the elements of its value
paid by the capitalist or for which he has thrown an equivalent
into production. These costs must be made good to preserve the
capital or to reproduce it in its original magnitude.

The value contained in a commodity is equal to the labour-time
expended in its production, and the sum of this labour consists
of paid and unpaid portions. But for the capitalist the costs of
the commodity consist only of that portion of the labour materi¬
alised in it for which he has paid. The surplus-labour contained
in the commodity costs the capitalist nothing, although, like the
paid portion, it costs the labourer his labour, and although it
creates value and enters into the commodity as a value-creating
clement quite like paid labour. The capitalist’s profit is derived
from the fact that he has something to sell for which he has paid
nothing. The surplus-value, or profit, consists precisely in the
excess value of a commodity over its cost-price, i.e., the excess
of the total labour embodied in the commodity over the paid
labour embodied in it. The surplus-value, whatever its origin,
is thus a surplus over the advanced total capital. The proportion
of this surplus to the total capital is therefore expressed by the

fraction £, in which C stands for total capital. We thus obtain
the rate o) profit = , as distinct from the rate of surplus-

RATE OF PROFIT

The rate of surplus-value measured against the variable capital
is called rate of surplus-value. The rate of surplus-value measured
against the total capital is called rate of profit. These are two
different measurements of the same entity, and owing to the differ¬
ence of the two standards of measurement they express different
proportions or relations of this entity.

The transformation of surplus-value into profit must be deduced
from the transformation of the rate of surplus-value into the rate
of profit, not vice versa. And in fact it was rate of profit which
was the historical point of departure. Surplus-value and rate of
surplus-value are, relatively, the invisible and unknown essence
that wants investigating, while rate of profit and therefore the
appearance of surplus-value in the form of profit are revealed on
the surface of the phenomenon.

So far as the individual capitalist is concerned, it is evident
that he is only interested in the relation of the surplus-value, or
the excess value at which he sells his commodities, to the total
capital advanced for the production of the commodities, while
the specific relationship and inner connection of this surplus
with the various components of capital fail to interest him, and
it is, moreover, rather in his interests to draw the veil over this
specific relationship and this intrinsic connection.

Although the excess- value of a commodity over its cost-price is
shaped in the immediate process of production, it is realised only
in the process of circulation, and appears all the more readily to
have arisen from the process of circulation, since in reality,
under competition, in the actual market, it depends on market
conditions whether or not and to what extent this surplus is real¬
ised. There is no need to waste words at this point about the fact
that if a commodity is sold above or below its value, there is
merely another kind of division of surplus-value, and that this
different division, this changed proportion in which various
persons share in the surplus-value, does not in any way alter
either the magnitude or the nature of that surplus-value. It is
not alone the metamorphoses discussed by us in Book II that take
place in the process of circulation; they fall in with actual com¬
petition, the sale and purchase of commodities above or below
their value, so that the surplus-value realised by the individual
capitalist depends as much on the sharpness of his business wits
as on the direct exploitation of labour.

In the process of circulation the time of circulation comes to
exert its influence alongside the working-time, thereby limiting
the amount of surplus-value realisable within a given time span.

CONVERSION QF SURPLUS-VALUE INTO PROFIT

Still other elements derived from circulation intrude decisively
into the actual production process. The actual process of produc¬
tion and the process of circulation intertwine and intermingle
continually, and thereby invariably adulterate their typical dis¬
tinctive features. The production of surplus-value, and of value in
general, receives new definition in the process of circulation, as
previously shown. Capital passes through the circuit of its meta¬
morphoses. Finally, stepping beyond its inner organic life, so to
say, it enters into relations with outer life, into relations in which
it is not capital and labour which confront one another, but capital
and capital in one case, and individuals, again simply as buyers
and sellers, in the other. The time of circulation and working¬
time cross paths and thus both seem to determine the surplus-
value. The original form in which capital and wage-labour
confront one another is disguised through the intervention of
relationships seemingly independent of it. Surplus-value itself does
not appear as the product of the appropriation of labour-time,
but as an excess of the selling price of commodities over their
cost-price, the latter thus being easily represented as their actual
value (valeur intrinseque), while profit appears as an excess of
the selling price of commodities over their immanent value.

True, the nature of surplus-value impresses itself constantly
upon the consciousness of the capitalist during the process of pro¬
duction, as his greed for the labour-time of others, etc., has
revealed in our analysis of surplus-value. But: 1) The actual
process of production is only a fleeting stage which continually
merges with the process of circulation, just as the latter merges
with the former, so that in the process of production, the more
or less clearly dawning notion of the source of the gain made in
it, i.e., the inkling of the nature of surplus-value, stands at best
as a factor equally valid as the idea that the realised surplus
originates in a movement that is independent of the production
process, that it arises in circulation, and that it belongs to capital
irrespective of the latter’s relation to labour. Even such modern
economists 'Rs Ramsay, Malthus, Senior, Torrens, etc., identify
these phenomena of circulation directly as proofs that capital
in its bare material existence, independent of its social relation
to labour which makes capital of it, is, as it were, an independent
source of surplus-value alongside labour and independent of
labour. 2) Under the item of expenses, which embrace wages as
well as the price of raw materials, wear and tear of machinery,
etc., the extortion of unpaid labour figures only as a saving in
paying for an article which is included in expenses, only as a

RATE OF PROFIT

smaller payment for a certain quantity of labour, similar to the
saving when raw materials are bought more cheaply, or the
depreciation of machinery decreases. In this way thp extortion of
surplus-labour loses its specific character. Its specific relationship
to surplus-value is obscured. This is greatly furthered and facili¬
tated, as shown in Book I (Abschn. VI),* by representing the
value of labour-power in the form of wages.

The relationships of capital are obscured by the fact that all
parts of capital appear equally as the source of excess value
(profit).

The way in which surplus-value is transformed into the form of
profit by way of the rate of profit is, however, a further develop¬
ment of the inversion of subject and object that takes place already
in the process of production. In the latter, we have seen, the
subjective productive forces of labour appear as productive
forces of capital.** On the one hand, the value, or the past labour,
which dominates living labour, is incarnated in the capitalist.
On the other hand, tlie labourer appears as bare material labour-
power, as a commodity. Even in the simple relations of production
this inverted relationship necessarily produces certain correspond¬
ingly inverted conceptions, a transposed consciousness which is
further developed by the metamorphoses and modifications of
the actual circulation process.

It is altogether erroneous, as a study of the Ricardian school
shows, to try to identify the laws of the rate of profit with the
laws of the rate of surplus-value, or vice versa. The capitalist
naturally does not see the difference between them. In the formula

the surplus-value is measured by the value of the total capital

advanced for its production, of which a part was totally consumed
in this production and a part was merely employed in it. In fact,

the formula 4; expresses the degree of self-expansion of the total

capital advanced, or, taken in conformity with inner conceptual
connections and the nature of surplus-value, it indicates the ratio
of the amount of variation of variable capital to the magnitude
of the advanced total capital.

In itself, the magnitude of value of total capital has no inner
relationship to the magnitude of surplus-value, at least not
directly. So far as its material elements are concerned, the total

• English edition: Part VI, pp. 535-43. — Ed.

•* English edition: Vol. I, pp. 332-33.— Ed.

CONVERSION OP SURPLUS-VALUE INTO PROFIT

capital minus the variable capital, that is, the constant capital,
consists of the material requisites — the means of labour and
materials of labour — needed to materialise labour. It is necessary
to have a certain quantity of means and materials of labour for
a specific quantity of labour to materialise in commodities and
thereby to produce value. A definite technical relation depending
on the special nature of the labour applied is established between
the quantity of labour and the quantity of means of production
to which this labour is to be applied. Hence there is also to that
extent a definite relation between the quantity of surplus-value,
or surplus-labour, and the quantity of means of production. For
instance, if the labour necessary for the production of the wage
amounts to a daily six hours, the labourer must work 12 hours
to do six hours of surplus-labour, or produce a surplus-value of
100%. He uses up twice as much of the means of production in
12 hours as he does in six. Yet this is no reason for the surplus-
value produced by him in six hours to be directly related to the
value of the means of production used up in those six, or in
12 hours. This value is here altogether immaterial; it is only
a matter of the technically required quantity. It does not matter
whether the raw materials or means of labour are cheap or dear,
as long as they have the required use-value and are available
in technically prescribed proportion to the labour to be applied.
If I know that x lbs. of cotton are consumed in an hour of spin¬
ning and that they cost a shillings, then, of course, I also know
that 12 hours’ spinning consumes 12 x lbs. of cotton =12 a
shillings, and can then calculate the proportion of the surplus-
value to the value of the 12 as well as to that of the six. But
the relation of living labour to the value of means of production
obtains here only to the extent that a shillings serve as a name
for x lbs. of cotton; because a definite quantity of cotton has
a definite price, and therefore, conversely, a definite price may
also serve as an index for a definite quantity of cotton, so long
as the price of cotton does not change. If I know that the labourer
must work 12 hours for me to appropriate six hours of surplus-
labour, that therefore I must have a 12-hour supply of cotton
ready for use, and if I know the price of this quantity of cotton
needed for 12 hours, then I have an indirect relation between
the price of cotton (as an index of the required quantity) and
the surplus-value. But, conversely, I can never conclude the
quantity of the raw material that may be consumed in, say,
one hour, and not six, of spinning from the price of the raw
material. There is, then, no necessary inner relation between

RATE OF PROFIT

the value of the constant capital, nor, therefore, between the
value of the total capital (=c+v) and the surplus-value.

If the rate of surplus-value is known and its magnitude given,
the rate of profit expresses nothing but what it actually is, namely
a different way of measuring surplus-value, its measurement
according to the value of the total capital instead of the value of
the portion of capital from which surplus-value directly originates
by way of its exchange for labour. But in reality (i.e., in the
world of phenomena) the matter is reversed. Surplus-value is
given, but given as an excess of the selling price of the commodity
over its cost-price; and it remains a mystery where this surplus
originated — from the exploitation of labour in the process of
production, or from outwitting the purchaser in the process of
circulation, or from both. What is also given is the proportion
of this surplus to the value of the total capital, or the rate of
profit. The calculation of this excess of the selling price over
the cost-price in relation to the value of the advanced total
capital is very important and natural, because in effect it yields
the ratio in which total capital has been expanded, i.e., the
degree of its self-expansion. If we proceed from this rate of profit,
we cannot therefore conclude the specific relations between the
surplus and the portion of capital invested in wages. We shall
see in a subsequent chapter* what amusing somersaults Malthus
makes when he tries in this way to get at the secret of the surplus-
value and of its specific relation to the variable part of the capital.
What the rate of profit actually shows is rather a uniform rela¬
tion of the surplus to equal portions of the total capital, which,
from this point of view, does not show any inner difference at
all, unless it be between the fixed and circulating capital. And
it shows this difference, too, only because the surplus is calcu¬
lated in two ways; namely, first, as a simple magnitude — as
excess over the cost-price. In this, its initial, form, the entire
circulating capital goes into the cost-price, while of the fixed
capital only the wear and tear goes into it. Second, the relation of
this excess in value to the total value of the advanced capital.
In this case, the value of the total fixed capital enters into the
calculation, quite the same as the circulating capital. Therefore,
the circulating capital goes in both times in the same way, while
the fixed capital goes in differently the first time, and in the
same way as circulating capital the second time. Under the

* K. Marx, Theorien uber den Mehrwert. K. Marx/F. Engels, Werke,
Band 26. Teil 3. S. 25-28.— Ed.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

circumstances the difference between fixed and circulating capital
is the only one which obtrudes itself.

If, as Hegel would put it, the surplus therefore re-reflects itself
in itself out of the rate of profit, or, put differently, the surplus
is more closely characterised by the rate of profit, it appears as
a surplus produced by capital above its own value over a year,
or in a given period of circulation.

Although the rate of profit thus differs numerically from the
rate of surplus-value, while surplus-value and profit are actually
the same thing and numerically equal, profit is nevertheless a
converted form of surplus-value, a form in which its origin and
the secret of its existence are obscured and extinguished. In
effect, profit is the form in which surplus-value presents itself
to the view, and must initially be stripped by analysis to disclose
the latter. In surplus-value, the relation between capital and
labour is laid bare; in the relation of capital to profit, i.e., of
capital to surplus-value that appears on the one hand as an
excess over the cost-price of commodities realised in the process
of circulation and, on the other, as a surplus more closely deter¬
mined by its relation to the total capital, the capital appears as
a relation to itself, a relation in which it, as the original sum
of value, is distinguished from a new value which it generated.
One is conscious that capital generates this new value by its
movement in the processes of production and circulation. But
the way in which this occurs is cloaked in mystery and appears
to originate from hidden qualities inherent in capital itself.

The further we follow the process of the self-expansion of capi¬
tal, the more mysterious the relations of capital will become,
and the less the secret of its internal organism will be revealed.

In this part, the rate of profit is numerically different from
the rate of surplus-value; while profit and surplus-value are
treated as having the same numerical magnitude but only a
different form. In the next part we shall see how the alienation
goes further, and how profit represents a magnitude differing
also numerically from surplus-value.

CHAPTER III

THE RELATION OF THE RATE OF PROFIT
TO THE RATE OF SURPLUS- VALUE

Here, as at the close of the preceding chapter, and generally in
this entire1 first part, we presume the amount of profit falling to
a given capital to be equal to the total amount of surplus-value
produced by means of this capital during a certain period of
circulation. We thus leave aside for the present the fact that, on
the one hand, this surplus-value may be broken up into various
sub-forms, such as interest on capital, ground-rent, taxes, etc.,
and that, on the other, it is not, as a rule, identical with profit
as appropriated by virtue of a general rate of profit, which will
be discussed in the second part.

So far as the quantity of profit is assumed to be equal to that of
surplus-value, its magnitude, and that of the rate of profit, is
determined by ratios of simple figures given or ascertainable in
every individual case. The analysis, therefore, first is carried on
purely in the mathematical field.

We retain the designations used in Books I and II. Total
capital G consists of constant capital c and variable capital v,
and produces a surplus-value s. The ratio of this surplus-value

to the advanced variable capital, or is called the rate of surplus-

value and designated s'. Therefore — =s\ and consequently

s=s v. If this surplus-value is related to the total capital instead
of the variable capital, it is called profit, p, and the ratio of the

surplus-value s to the total capital C, or is called the rate of
profit, p . Accordingly,

s s

G c+v "

CONVERSION OP SURPLUS-VALUE INTO PROFIT

Now, substituting for s its equivalent s'v, we find

which equation may also be expressed by the proportion

p' : s'=v : C;

the rate of profit is related to the rate of surplus-value as the vari¬
able capital is to the total capital.

It follows from this proportion that the rate of profit, p , is
always smaller than s', the rate of surplus-value, because v, the
variable capital, is always smaller than C, the sum of v+c, or
the variable plus the constant capital; the only, practically
impossible case excepted, in which v=C, that is, no constant
capital at all, no means of production, but only wages are ad¬
vanced by the capitalist.

However, our analysis also considers a number of other factors
which have a determining influence on the magnitude of c, v,
and s, and must therefore be briefly examined.

First, the value of money. We may assume this to be constant
throughout.

Second, the turnover. We shall leave this factor entirely out of
consideration for the present, since its influence on the rate of
profit will be treated specially in a later chapter. [Here we

anticipate just one point, that the formula p'= s'-^- is strictly

correct only for one period oftturnover of the variable capital.
But we may correct it for an annual turnover by substituting
for the simple rate of surplus-value, s , the annual rate of surplus-
value, s'n. In this, n is the number of turnovers of the variable
capital within one year. (Cf. Book II, Chapter XVI, 1.) — F. E.\

Third, due consideration must be given to productivity of labour,
whose influence on the rate of surplus-value has been thoroughly
discussed in Book I (Abschn. IV).* Productivity of labour may
also exert a direct influence on the rate of profit, at least of an
individual capital, if, as has been demonstrated in Book I
(Kap. X, S. 323/314),** this individual capital operates with
a higher than the average social productivity and produces
commodities at a lower value than their average social value,
thereby realising an extra profit. However, this case will not be
considered for the present, since in this part of the work we also

* English edition: Part IV. — Ed.

** English edition: Ch. XII, pp. 316-17. — Ed.

RELATION OF RATE OF PROFIT TO RATE OF SURPLUS-VALUE 51

proceed from the premise that commodities are produced under
normal social conditions and are sold at their values. Hence,
we assume in each case that the productivity of labour remains
constant. In effect, the value-composition of a capital invested
in a branch of industry, that is, a certain proportion between
the variable and constant capital, always expresses a definite
degree of labour productivity. As soon, therefore, as this propor¬
tion is altered by means other than a mere change in the value
of the material elements of the constant capital, or a change in
wages, the productivity of labour must likewise undergo a cor¬
responding change, and we shall often enough see, for this reason,
that changes in the factors c, v, and s also imply changes in
the productivity of labour.

The same applies to the three remaining factors — the length
of the working-day, intensity of labour, and wages. Their influence
on the quantity and rate of surplus-value has been exhaustively
discussed in Book I.* It will be understood, therefore, that not¬
withstanding the assumption, which we make for the sake of
simplicity, that these three factors remain constant, the changes
that occur in v and s may nevertheless imply changes in the
magnitude of these, their determining elements. In this respect
we must briefly recall that the wage influences the quantity of
surplus-value and the rate of surplus-value in inverse proportion
to the length of the working-day and the intensity of labour;
that an increase in wages reduces the surplus-value, while a
lengthening of the working-day and an increase in the intensity of
labour add to it.

Suppose a capital of 100 produces a surplus-value of 20 employ¬
ing 20 labourers working a 10-hour day for a total weekly wage
of 20. Then we have:

80o+20t+20s; s'=100%, p'=20%.

Now the working-day is lengthened to 15 hours without raising
the wages. The total value produced by the 20 labourers will
thereby increase from 40 to 60 (10 : 15=40 : 60). Since v, the
wages paid to the labourers, remains the same, the surplus-
value rises from 20 to 40, and we have:

80c+20t+408; s'=200%, p'=40%.

If, conversely, the ten-hour working-day remains unchanged,
while wages fall from 20 to 12, the total value-product amounts

• English edition: Vol. I, pp. 519-30. — Ed.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

to 40 as before, but is differently distributed; v falls to 12, leav¬
ing a remainder of 28 for s. Then we have:

80c+12v-28s; s'=233 »/,%, P'=§S=30

Hence, we see that a prolonged working-day (or a corresponding
increase in the intensity of labour) and a fall in wages both
increase the amount, and thus the rate, of surplus-value. Con¬
versely, a rise in wages, other things being equal, would lower
the rate of surplus-value. Hence, if v rises through a rise in wages,
it does not express a greater, but only a dearer quantity of labour,
in which case s' and p' do not rise, but fall.

This indicates that changes in the working-day, intensity of
labour and wages cannot take place without a simultaneous
change in v and s and their ratio, and therefore also p', which
is the ratio of s to the total capital c+v. And it is also evident
that changes in the ratio of s to v also imply corresponding
changes in at least one of the three above-mentioned labour
conditions.

Precisely this reveals the specific organic relationship of vari¬
able capital to the movement of the total capital and to its self¬
expansion, and also its difference from constant capital. So far
as generation of value is concerned, the constant capital is
important only for the value it has. And it is immaterial to the
generation of value whether a constant capital of £1,500 represents
1,500 tons of iron at, say, £1, or 500 tons of iron at £3. The
quantity of actual material, in which the value of the constant
capital is incorporated, is altogether irrelevant to the formation
of value and the rate of profit, which varies inversely to this
value no matter what the ratio of the increase or decrease of the
value of constant capital to the mass of material use-value which
it represents.

It is different with variable capital. It is not the value it has,
not the labour incorporated in it, that matter at this point,
but this value as a mere index of the total labour that it sets in
motion and which is not expressed in it — the total labour, whose
difference from the labour expressed in that value, hence the
paid labour, i.e., that portion of the total labour which produces
surplus-value, is all the greater, the less labour is contained in
that value itself. Suppose, a ten-hour working-day is equal to
ten shillings=ten marks. If the labour necessary to replace the
wages, and thus the variable capital = 5 hours=5 shillings,
then the surplus-labour = 5 hours and the surplus-value = 5 shil-

RELATION OF RATE OF PROFIT TO RATE OF SURPLUS-VALUE 53

lings Should the necessary labour=4 hours=4 shillings, then the
surplus-labour =6 hours and the surplus-value =6 shillings.

Hence, as soon as the value of the variable capital ceases to be
an index of the quantity of labour set in motion by it, and,
moreover, the measure of this index is altered, the rate of surplus-
value will change in the opposite direction and inversely.

Let us now go on to apply the above-mentioned equation of

the rate of profit, p'=s'^-, to the various possible cases. We shall
successively change the value of the individual factors of s'-^-

and determine the effect of these changes on the rate of profit.
In this way we shall obtain different series of cases, which we
may regard either as successive altered conditions of operation
for one and the same capital, or as different capitals existing side
by side and introduced for the sake of comparison, taken, as it
were, from different branches of industry or different countries.
In cases, therefore, where the conception of some of our examples
as successive conditions for one and the same capital appears
to be forced or impracticable, this objection falls away the mo¬
ment they are regarded as comparisons of independent capitals.

Hence, we now separate the product s'^- into its two factors
s' and At first we shall treat s' as constant and analyse the
effect of the possible variations of ^-. After that we shall treat

the fraction as constant and let s' pass through its possible

variations. Finally we shall treat all factors as variable magni¬
tudes and thereby exhaust all the cases from which laws concern¬
ing the rate of profit may be derived.

I. c' constant, ~ variable

This case, which embraces a number of subordinate cases, may
be covered by a general formula. Take two capitals, C and Clt
with their respective variable components, v and vx, with a
common rate of surplus-value s', and rates of profit p'and px.
Then:

, , V , , Vj

p~s p»-scr*

Now let us make a proportion of C and Clt and of v and vx. For

C v

instance, let the value of the fraction — E, and that of -=e.

G v

3—2494

CONVERSION OF SURPLUS-VALUE INTO PROFIT

Then C,=EC, and \1=ev. Substituting in the above equation
these values for pt, Cx and vlt we obtain

Again, we may derive a second formula from the above two
equations by transforming them into the proportion:

p;Pi=s c:s cf

v . x*

C* Ci’

Since the value of a fraction is not changed if we multiply
or divide its numerator and denominator by the same number,

we may reduce ^-and X5 to percentages, that is, we may make C
and Q both = 100. Then we have — =-X-r and 4^-=-^, and may

C 11AJ l_jj lUU

then drop the denominators in the above proportion, obtaining:

p' : Pl' = v : Vj, or:

Taking any two capitals operating with the same rate of
surplus-value, the rates of profit are to each other as the variable
portions of the capitals calculated as percentages of their re¬
spective total capitals.

These two formulas embrace all the possible variations of

One more remark before we analyse these various cases singly.
Since C is the sum of c and v, of the constant and variable capitals,
and since the rates of surplus-value, as of profit, are usually ex¬
pressed in percentages, it is convenient to assume that the sum
of c+v is also equal to 100, i.e., to express c and v in percentages.
For the determination of the rate of profit, if not of the amount,
it is immaterial whether we say that a capital of 15,000, of which
12,000 is constant and 3,000 is variable, produces a surplus-
value of 3,000, or whether we reduce this capital to percentages:

15,000 C = 12,000c+3,000, (+3,0009)

100 0=800+20, (+20s).

In either case the rate of surplus-value s' = 100%, and the rate
of pro fit =20%.

The same is true when we compare two capitals, say, the forego¬
ing capital with another, such as

12,000 C = 10,800c+1,200, (+l,200s)

100 C = 90c+10, (+108)

RELATION OF RATE OF PROFIT TO RATE OF SURPLUS-VALUE 55

in both of which s' = 100%, p' = 10%, and in which the comparison
with the foregoing capital is clearer in percentage form.

On the other hand, if it is a matter of changes taking place in
one and the same capital, the form of percentages is rarely to be
used, because it almost always obscures these changes. If a capital
expressed in the form of percentages:

80c+20v+20s

assumes the form of percentages:

90c+10v-f 103,

we cannot tell whether the changed composition in percentages,
90v-fl0c, is due to an absolute decrease of v or an absolute increase
of c, or to both. We would need the absolute magnitudes in figures
to ascertain this. In the analysis of the following individual
cases of variation, however, everything depends on how these
changes have come about; whether 80v+20c changed into 90c+10v
through an increase of the constant capital without any change in
the variable capital, for instance through l2,0OOc-f-3,0OOT chang¬
ing into 27,000c-f 3,000v (corresponding to a percentage of
90c + 10t); or whether they took this form through a reduction
of the variable capital, with the constant capital remaining
unchanged, that is, through a change into 12,000C4-1,3331/3V
(also corresponding to a percentage of 90c+10v); or, lastly,
whether both of the terms changed into 13,500c+l,500v (cor¬
responding once more to a percentage of 90C+10T). But it is precise¬
ly these cases which we shall have to successively analyse,
and in so doing dispense with the convenient form of percentages,
or at least employ these only as a secondary alternative.

1) s' and C constant, v variable.

If v changes in magnitude, C can remain unaltered only if c,
the other component of C, that is, the constant capital, changes
by the same amount as v, but in the opposite direction.

If C originally=80c + 20T = 100, and if v is then reduced to 10,
then C can = 100 only if c is increased to 90; 90c+10v = 100.
Generally speaking, if v is transformed into v±d, into v increased
or decreased by d, then c must be transformed into cTd, into
c varying by the same amount, but in the opposite direction,
so that the conditions of the present case are satisfied.

Similarly, if the rate of surplus-value s' remains the same, while
the variable capital v changes, the amount of surplus-value s

CONVERSION OF SURPLUS-VALUE INTO PROFIT

must change, since s=s'v, and since one of the factors of s'v,
namely v, is given another value.

The assumptions of the present case produce, alongside the
original equation.

still another equation through the variation of v:

in which v has become Vj and p[, the resultant changed rate of
profit, is to be found.

It is determined by the following proportion:

f / » V /Vi

p ;Pi=s ir :s c v:vi

Or: with the rate of surplus-value and total capital remaining
the same, the original rate of profit is to the new rate of profit
produced by a change in the variable capital as the original
variable capital is to the changed variable capital.

If the original capital was, as above:

I. 15,000 C = 12,000c+3,000v (+3,000„), and if it is now:

II. 15,000 C— 13,000c+2,000v (+2,000„), then C=15,000 and
s' = 100% in either case, and the rate of profit of I, 20%, is to
that of II, 13V3%, as the variable capital of I, 3,000, is to that
of II, 2,000, i.e., 20% : 13V*%=3,000 : 2,000.

Now, the variable capital may either rise or fall. Let us first
take an example in which it rises. Let a certain capital be
originally constituted and employed as follows:

I. 100c+20v+108; C=120, s'=50%, p'=8‘/3%.

Now let the variable capital rise to 30. In that case, according
to our assumption, the constant capital must fall from 100 to 90
so that total capital remains unchanged at 120. The rate of sur¬
plus-value remaining constant at 50%, the surplus-value produced
will then rise from 10 to 15. We shall then have:

II. 90c+30 +15„; C=120, s'=50%, p'=12Va%.

Let us first proceed from the assumption that wages remain
unchanged. Then the other factors of the rate of surplus-value,
i.e., the working-day and the intensity of labour, must also
remain unchanged. In that event the rise of v (from 20 to 30)
can signify only that another half as many labourers are employed.

relation of rate of profit to rate of surplus-value 57

Then the total value produced also rises ode-half, from 30 to 45,
and is distributed, just as before, */* for wages and V* for surplus-
value. But at the same time, with the increase in the number
of labourers, the constant capital, the value of the means of pro¬
duction, has fallen from 100 to 90. We have, then, a case of
decreasing productivity of labour combined with a simultaneous
shrinkage of constant capital. Is such a case economically
possible?

In agriculture and the extractive industries, in which a decrease
in labour productivity and, therefore, an increase in the number
of employed labourers is quite comprehensible, this process is —
on the basis and within the scope of capitalist production —
attended by an increase, instead of a decrease, of constant capital.
Even if the above fall of c were due merely to a fall in prices,
an individual capital would be able to accomplish the transition
from I to II only under very exceptional circumstances. But in
the case of two independent capitals invested in different
countries, or in different branches of agriculture or extractive
industry, it would be nothing out of the ordinary if in one of the
cases more labourers (and therefore more variable capital) were
employed and worked with less valuable or scantier means of
production than in the other case.

But let us drop the assumption that the wage remains the same,
and let us explain the rise of the variable capital from 20 to 30
through a rise of wages by one-half. Then we shall have an entirely
different case. The same number of labourers— say, twenty —
continue to work with the same or only slightly reduced means
of production. If the working-day remains unchanged — say,
10 hours — then the total value produced also remains unchanged.
It was and remains=30. But all of this 30 is now required to
make good the advanced variable capital of 30; the surplus-
value would disappear. We have assumed, however, that the
rate of surplus-value should remain constant, that is, the same
as in I, at 50%. This is possible only if the working-day is pro¬
longed by one-half to 15 hours. Then the 20 labourers would
produce a total value of 45 in 15 hours, and all conditions would
be satisfied:

II. 90c+30v+15,; C = 120, s'=50%, p'=121/,%.

In this case, the 20 labourers do not require any more means
of labour, tools, machines, etc., than in case I. Only the raw
materials or auxiliary materials would have to be increased by

CONVERSION OF SURPLUS-VALUE INTO PROFIT

one-half. In the event of a fall in the prices of these materials,
the transition from I to II might be more possible economically,
even for an individual capital in keeping with our assumption.
And the capitalist would be somewhat compensated by increased
profits for any loss incurred through the depreciation of his
constant capital.

Now let us assume that the variable capital falls, instead of
rising. Then we have but to reverse our example, taking II as
the original capital, and passing from II to I.

II. 90c+30v + 15s then changes into

I. 100c+20v-f 103, and it is evident that this transposition does
not in the least alter any of the conditions regulating the
respective rates of profit and their mutual relation.

If v falls from 30 to 20 because */s fewer labourers are employed
with the growing constant capital, then we have before us the
normal case of modern industry, namely, an increasing productiv¬
ity of labour, and the operation of a larger quantity of means of
production by fewer labourers. That this movement is necessarily
connected with a simultaneous drop in the rate of profit will
be developed in the third part of this book.

If, on the other hand, v falls from 30 to 20, because the same
number of labourers is employed at lower wages, the total value
produced would, with the working-day unchanged, as before=
= 30v + 15s=45. Since v fell to 20, the surplus-value would rise
to 25, the rate of surplus-value from 50% to 125%, which would
be contrary to our assumption. To comply with the conditions
of our case, the surplus-value, with its rate at 50%, must rather
fall to 10, and the total value produced must, therefore, fall from
45 to 30, and this is possible only if the working-day is reduced
by one-third. Then, as before, we have:

100c+20»+10g; s'=50%, p'=8V,%.

It need hardly be said that this reduction of the working-time,
in the case of a fall in wages, would not occur in practice. But that
is immaterial. The rate of profit is a function of several variable
magnitudes, and if we wish to know how these variables influence
the rate of profit, we must analyse the individual effect of each
in turn, regardless of whether such an isolated effect is economi¬
cally practicable with one and the same capital.

2) s' constant, v- variable, C changes through the variation of v.

This case differs from the preceding one only in degree. Instead
of decreasing or increasing by as much as v increases or decreases.

relation of rate of profit to rate of surplus-value 59

c remains constant. Under present-day conditions in the major
industries and agriculture the variable capital is only a relatively
small part of the total capital. For this reason, its increase or
decrease, so far as either is due to changes in the variable capital,
are likewise relatively small.

Let us again proceed with a capital:

I. 10^+20*4-10,; C=120, s'=50%, p'=8 »/,%,
which would then change, say, into:

II. 100c+30v+15,; C— 130, s'=50%, p'=ll7/i,%-

The opposite case, in which the variable capital decreases, would
again be illustrated by the reverse transition from II to I.

The economic conditions would be essentially the same as in
the preceding case, and therefore they need not be discussed again.
The transition from I to II implies a decrease in the productivity
of labour by one-half; for II the utilisation of 100c requires an
increase of labour by one-half over that of I. This case may occur
in agriculture.*

But while the total capital remains constant in the preceding
case, owing to the conversion of constant into variable capital,
or vice versa, there is in this case a tie-up of additional capital
if the variable capital increases, and a release of previously em¬
ployed capital if the variable capital decreases.

3) s' and v constant, c and therefore C variable.

In this case the equation changes from:

p' = s' into p,' = s' ~ ,

and after reducing the same factors on both sides, we have:

Pi : p'=C:Cj;

with the same rate of surplus-value and equal variable capitals,
the rates of profit are inversely proportional to the total capitals.

Should we, for example, have three capitals, or three different
conditions of the same capital:

I. 80c+20,+20,; C=100, s'=100%, p'=20%;

II. 100c+20*+20s; C=120, s' = 100%, p' = 16*/,%;

III. 60c+20v+20s; C=80, s'=100%, p'=25%.

* The manuscript has the following note at this point: “Investigate
later in what manner this case is connected with ground-rent.” — F. E.

CONVERSION OF SURPLUS- VALUE INTO PROFIT

Then we obtain the proportions:

20% : 16 V,%=120 : 100 and 20% : 25% = 80 : 100.

The previously given general formula for variations of — with
a constant s' was:

p(=s'|^; now it becomes: Pi=sg^.

since v does not change, the factor e=^-, becomes = l.

Since s'v=s, the quantity of surplus-value, and since both
s' and v remain constant, it follows that s, too, is not affected by
any variation of C. The amount of surplus-value is the same
after the change as it was before it.

If c were to fall to zero, p' would =s', i.e., the rate of profit
would equal the rate of surplus-value.

The alteration of c may be due either to a mere change in the
value of the material elements of constant capital, or to a change
in the technical composition of the total capital, that is, a change
in the productivity of labour in the given branch of industry.
In the latter case, the productivity of social labour mounting
due to the development of modern industry and large-scale agri¬
culture would bring about a transition (in the above illustration)
in the sequence from III to I and from I to II. A quantity of
labour which is paid with 20 and produces a value of 40 would
first utilise means of labour to a value of 60; if productivity
mounted and the value remained the same, the used up means
of labour would rise first to 80, and then to 100. An inversion
of this sequence would imply a decrease in productivity. The
same quantity of labour would put a smaller quantity of means
of production into motion and the operation would be curtailed,
as may occur in agriculture, mining, etc.

A saving in constant capital increases the rate of profit on the
one hand, and, on the other, sets free capital, for which reason
it is of importance to the capitalist. We shall make a closer study
of this, and likewise of the influence of a change in the prices
of the elements of constant capital, particularly of raw materials,
at a later point.*

It is again evident here that a variation of the constant capital
equally affects the rate of profit, regardless of whether this
variation is due to an increase or decrease of the material ele¬
ments of c, or merely to a change in their value.

• Present edition: Ch. V, VI.— Ed.

RELATION OF RATE OF PROFIT TO RATE OF SURPLUS-VALUE 61

4) s' constant , v, c , and C all variable.

In this case, the general formula for the changed rate of profit,
given at the outset, remains in force:

It follows from this that with the rate of surplus-value remaining

the same:

a) The rate of profit falls if E is greater than e, that is, if the
constant capital is augmented to such an extent that the total
capital grows at a faster rate than the variable capital. If a capital
of 80c+20t+203 changes into 170c+30v-l-303, then s' remains=

v 20 TO

= 100%, but^r falls from ^ to — , in spite of the fact that both

v and C have grown, and the rate of profit falls correspondingly
from 20% to 15%.

b) The rate of profit remains unchanged only if e = E, that is,
if the fraction retains the same value in spite of a seeming

change, i.e., if its numerator and denominator are multiplied or
divided by the same factor. The capitals 80c+20v+203 and 160,. 4-
— 40v+40g obviously have the same rate of profit of 20%, because s'

remains =100% and -^- = 4^- represents the same value in

both examples.

c) The rate of profit rises when e is greater than E, that is,
when the variable capital grows at a faster rate than the total
capital. If 8Oc+2Ov-f-20, turns into 120c+40v+40s, the rate of
profit rises from 20% to 25%, because with an unchanged

s -g-=-jgo rises to-^, or from l/6 to /«■

If the changes of v and C are in the same direction, we may
view this change of magnitude as though, to a certain extent,

both of them varied in the same proportion, so that -g- remained

unchanged up to that point. Beyond this point, only one of them
would vary, and we shall have thereby reduced this complicated
case to one of the preceding simpler ones.

Should, for instance, 80c-|-2()T-i-20g become 100c+30v-t-303,
then the proportion of v to c, and also to C, remains the same in
this variation up to: 100c+25T+25g. Up to that point, therefore,
the rate of profit likewise remains unchanged. We may then
take 100c-f 25v + 25s as our point of departure; we find that v
increased by 5 to become 30v, so that C rose from 125 to 130,

CONVERSION OF SURPLUS-VALUE INTO PROFIT

thus giving us the second case, that of the simple variation of
v and the consequent variation of C. The rate of profit, which
was originally 20%, rises through this addition of 5V to 23 1/13%,
provided the rate of surplus-value remains the same.

The same reduction to a simpler case can also take place if
v and C change their magnitudes in opposite directions. For
instance, let us again start with 80c+20v-(-208, and let this become:
110c+10t4-108. In that case, with the change going as far as
40c-f 10T+10g, the rate of profit would remain the same 20%.
By adding 70c to this intermediate form, it will drop to 8 V3%.
Thus, we have again reduced the case to an instance of change of
one variable, namely of c.

Simultaneous variation of v, c, and C, does not, therefore,
offer any new aspects and in the final analysis leads back to a
case in which only one factor is a variable.

Even the sole remaining case has actually been exhausted,
namely that in which v and C remain numerically the same,
while their material elements undergo a change of value, so that
v stands for a changed quantity of labour put in motion and c
for a changed quantity of means of production put in motion.

In 80c+20v-|-20s, let 20v originally represent the wages of 20
labourers working 10 hours daily. Then let the wages of each rise
from 1 to 17, . In that case the 20v will pay only 16 labourers
instead of 20. But if 20 labourers produce a value of 40 in 200
working-hours, 16 labourers working 10 hours daily will in
160 working-hours produce a value of only 32. After deducting
20v for wages, only 12 of the 32 would then remain for surplus-
value. The rate of surplus-value would have fallen from 100%
to 60%. But since we have assumed the rate of surplus-value
to be constant, the working-day would have to be prolonged by
one-quarter, from 10 to 12‘/2 hours. If 20 labourers working
10 hours daily = 200 working-hours produce a value of 40, then
16 labourers working 1272 hours daily = 200 hours will produce
the same value, and the capital of 80c+20v would as before yield
the same surplus-value of 20.

Conversely, if wages were to fall to such an extent that 20v
would represent the wages of 30 labourers, then s would remain
constant only if the working-day were reduced from 10 to 62/3
hours. For 20x10 = 30x62/3 — 200 working-hours.

We have already in the main discussed to what extent c may in
these divergent examples remain unchanged in terms of value
expressed in money and yet represent different quantities of
means of production changed in accordance with changing con-

RELATION OF RATE OF PROFIT TO RATE OF SURPLUS-VALUE 63

ditions. In its pure form this case would be possible only by way
of an exception.

As for a change in the value of the elements of c which increases
or decreases their mass but leaves the sum of the value of c un¬
changed, it does not affect either the rate of profit or the rate of
surplus-value, so long as it does not lead to a change in the magni¬
tude of v.

We have herewith exhausted all the possible cases of variation
of v, c, and C in our equation. We have seen that the rate of profit
may fall, remain unchanged, or rise, while the rate of surplus-
value remains the same, with the least change in the proportion
of v to c or to C, being sufficient to change the rate of profit as
well.

We have seen, furthermore, that in variations of v there is a
certain limit everywhere beyond which it is economically im¬
possible for s' to remain constant. Since every one-sided variation
of c must also reach a certain limit where v can no longer remain
unchanged, we find that there are limits for every possible varia¬
tion of beyond which s' must likewise become variable. In

the variations of s' which we shall now discuss, this interaction
of the different variables of our equation will stand out still
clearer.

II. s' variable

We obtain a general formula for the rates of profit with different

rates of surplus-value, no matter whether remains constant or
not, by converting the equation:

into

. » v,

Pi — m Cl .

in which p(, s*, vx and Ct denote the changed values of p', s',
v and C. Then we have:

and hence:

P':P; = s;-J-:s;-g-,

P' = 7xTx|xp'

CONVERSION OF Sl’RPLL'S-VALUE. INTO PROFIT

1) s' variable , t constant.
In this case we have the equations:

in both of which ' is equal. Therefore:

p': Pi ==s< : s^.

The rates of profit of two capitals of the same composition are
to each other as the two corresponding rates of surplus-value. Since

in the fraction ^ it is not a question of the absolute magnitudes of

v and C, but only of their ratio, this applies to all capitals of equal
composition whatever their absolute magnitude.

80c+20T-r209; C=100, s' = 100%, p'=20%
160c+40v-t209; C=200, s' = 50%, p' = 10%

100% : 50% =20% : 10%.

If the absolute magnitudes of v and C are the same in both
cases, the rates of profit are moreover also related to one another
as the amounts of surplus-value:

p':pi=s'v:s;v=s:s1.

ror instance:

80c+20v+205; s' = 100%, p' = 20%

80c-f 20t + 10s; s' = 50%, p' = 10%

20% : 10% = 100 X 20 : 50 X 20=20s : 10,.

It is now clear that with capitals of equal absolute or percent¬
age composition the rate of surplus-value can differ only if either
the wages, or the length of the working-day, or the intensity of
labour, differ. In the following three cases:

I. 80c-r-20v — 10s; s' = 50%, p' = 10%

II. 80c-f20T~209; s' = 100%, p' = 20%

III. 80c+20T+40.; s' = 200%, p'=40%

the total value produced in I is 30 (20T+10S); in II it is 40; in III
it is 60. This may come about in three different ways.

First, if the wages are different, and 20v stands for a different
number of labourers in every individual case. Suppose capital I
employs 15 labourers 10 hours daily at a wage of £1V3, who
produce a value of £30, of which £20 replace the wages and £10
are surplus-value. If wages fall to £1, then 20 labourers may be

RELATION OF RATE OF PROFIT TO RATE OF SURPLUS-VALUE 65

employed for 10 hours; they will produce a value of £40, of
which £20 will replace the wages and £20 will be surplus-value.
Should wages fall still more, to £a/3, thirty labourers may be
employed for 10 hours. They will produce a value of £60, of
which £20 will be deducted for wages and £40 will represent
surplus-value.

This case — a constant composition of capital in per cent, a
constant working-day and constant intensity of labour, and the
rate of surplus-value varying because of variation in wages— is
the only one in which Ricardo’s assumption is correct: “Profit
would be high or low, exactly in proportion as wages were low or
high.” ( Principles , Ch. I, Sect. Ill, p. 18 of the Wor/es of
D. Ricardo, ed. by MacCulloch, 1852.)

Or second, if the intensity of labour varies. In that case, say, 20
labourers working 10 hours daily with the same means of produc¬
tion produce 30 pieces of a certain commodity in I, 40 in II, and
60 in III, of which every piece, aside from the value of the means
of production incorporated in it, represents a "new value of £1.
Since every 20 pieces=£20 make good the wages, there remain
10 pieces =£10 for surplus-value in I, 20 pieces =£20 in II,
and 40 pieces =£40 in III.

Or third, the working-day differs in length. If 20 labourers
work with the same intensity for 9 hours in I, 12 hours in II,
and 18 hours in III, their total products, 30 : 40 :.60 vary as
9 : 12 : 18. And since wages=20 in every case, 10, 20, and
40 respectively again remain as surplus-value.

A rise or fall in wages, therefore, influences the rate of surplus-
value inversely, and a rise or fall in the intensity of labour, and
a lengthening or shortening of the working-day, act the same

way on the rate of surplus-value and thereby, with j constant,
on the rate of profit.

2) s' and v variable, C constant.

The following proportion applies in this case:

/ , v / Vi

p i = s7r:s>7r

The rates of profit are related to one another as the respective
amounts of surplus-value.

Changes in the rate of surplus-value with the variable capital
remaining constant meant a change in the magnitude and distri¬
bution of the produced value. A simultaneous variation of v and

CONVERSION OF SURPLUS-VALUE INTO PROFIT

s' also always implies a different distribution, but not always a
change in the magnitude of the produced value. Three cases are
possible:

a) Variation of v and s' takes place in opposite directions,
but by the same amount; for instance:

80c+20v+10a; s' =50%, p'=10%

90c+10v+20s; s =200%, p' = 20%.

The produced value is equal in both cases, hence also the
quantity of labour performed; 20v-fl0a=10,-f 20B=30. The only
difference is that in the first case 20 is paid out for wages and 10
remains as surplus-value, while in the second case wages are only

10 and surplus-value is therefore 20. This is the only case in which
the number of labourers, the intensity of labour, and the length
of the working-day remain unchanged, while v and s' vary
simultaneously.

b) Variation of s' and v also takes place in opposite directions,
but not by the same amount. In that case the variation of either
v or s' outweighs the other.

I. 80c+20v+20„; s' = 100%, p' = 20%

II. 72c-)-28v-f-203; s'=713/,%, p' = 20%

III. 84c+16v-f20s; s' = 125%, p'=20%,

Capital I pays for produced value amounting to 40 with 20v,

11 a value of 48 with 28v, and III a value of 36 with 16v. Both
the produced value and the wages have changed. But a change
in the produced value means a change in the amount of labour
performed, hence a change either in the number of labourers, the
hours of labour, the intensity of labour, or in more than one of
these.

c) Variation of s' and v takes place in the same direction. In
that case the one intensifies the effect of the other.

90c+10v+10s; s' = 100%, p' = 10%

80c+20v+ 308; s' = 150%, p'=30%

92c+8t +6S; s' = 75%, p'=6%.

Here too the three values produced are different, namely 20, 50,
and 14. And this difference in the magnitude of the respective
quantities of labour reduces itself once more to a difference in the
number of labourers, the hours of labour, and the intensity of
labour, or several or all of these factors.

RELATION OF RATE OF PROFIT TO RATE OF SLRPLUS-VALUE 67

3) s', v and C variable.

This case offers no new aspects and is solved by the general
formula given under II, in which s' is variable.

The effect of a change in the magnitude of the rate of surplus-
value on the rate of profit hence yields the following cases:

1) p' increases or decreases in the same proportion ass' if -
remains constant.

80c+20v+20s; s'- 100%, p'-20%

80c+20t+108; s' —50%, p' = 10%

100% : 50% =20% : 10%.

2) p' rises or falls at a faster rate than s' if —■ moves in the same

direction as s', that is, if it increases or decreases when s' increases
or decreases.

80c+20v+108; s'— 50%, p' = 10%

70c+30v+206; s'-662/3%, p'=20%

50% : 662/3%<10% : 20%.

3) p' rises or falls at a slower rate than s' if -pr changes inversely
to s', but at a slower rate.

80c+20v+103; s'— 50%, p'-10%

90c+10v-H5e; s' — 150%, p' = 15%

50% : 150% >10% : 15%.

4) p' rises while s' falls, or falls while s' rises if ~ changes

inversely to, and at a faster rate than, s'.

80c+20v+208; s' = 100%, p'=20%

90c+10v+158; s' — 150%, p' = 15%.

s' has risen from 100% to 150%, p' has fallen from 20% to
15%.

5) Finally, p' remains constant whereas s' rises or falls, while (v

changes inversely to, but in exactly the same proportion as, s'.
It is only this last case which still requires some explanation.

We have observed earlier in the variations of that one and the

CONVERSION OF SURPLUS-VALUE INTO PROFIT

same rate of surplus-value may be expressed in very much differ¬
ent rates of profit. Now we see that one and the same rate of
profit may be based on very much different rates of surplus-
value. But while any change in the proportion of v to C is suf¬
ficient to produce a difference in the rate of profit so long as s is
constant, a change in the magnitude of s must lead to a cor¬
responding inverse change of in order that the rate of profit

remain the same. In the case of one and the same capital, or in
that of two capitals in one and the same country this is possible
but in exceptional cases. Assume, for example, that we have a
capital of

80c+2QT+20,; C = 100, s' = 100%, p'=20%;

and let us suppose that wages fall to such an extent that the same
number of labourers is obtainable for 16v instead of 20T. Then,
other things being equal, and 4T being released, we shall have:

80c+16v+24s; C = 96, s' = 150%, p'=25%.

In order that p' may now = 20% as before, the total capital
would have to increase to 120, the constant capital therefore
rising to 104:

104c+16v+24s; C = 120, s' = 150%, p'-20%.

This would only be possible if the fall in wages were attended
simultaneously by a change in the productivity of labour which
required such a change in the composition of capital. Or, if the
value in money of the constant capital increased from 80 to 104.
In short, it would require an accidental coincidence of conditions
such as occurs in exceptional cases. In fact, a variation of s' that

does not call for the simultaneous variation of v, and thus of

is conceivable only under very definite conditions, namely in such
branches of industry in which only fixed capital and labour are
employed, while the materials of labour are supplied by Nature.

But this is not so when the rates of profit of two different coun¬
tries are compared. For in that case the same rate of profit is, in
effect, based largely on different rates of surplus-value.

It follows from all of these five cases, therefore, that a rising
rate of profit may correspond to a falling or rising rate of surplus-
value, a falling rate of profit tp a rising or falling rate of surplus-
value, and a constant rate of profit to a rising or falling rate of

RELATION OF RATE OF PROFIT TO RATE OP SURPLUS-VALUE 69

surplus-value. And we have seen in I that a rising, falling, or
constant rate of profit may also accord with a constant rate of
surplus-value.

The rate of profit, therefore, depends on two main factors — the
rate of surplus-value and the value-composition of capital. The
effects of these two factors may be briefly summed up as follows,
by giving the composition in per cent, for it is immaterial which
of the two portions of the capital causes the variation:

The rates of profit of two different capitals, or of one and the
same capital in two successive different conditions,

are equal

1) if the per cent composition of the capitals is the same and
their rates of surplus-value are equal;

2) if their per cent composition is not the same, and the rates
of surplus-value are unequal, provided the products of the rates
of surplus-value by the percentages of the variable portions of
capitals (s' by v) are the same, i.e., if the masses of surplus-value
(s=s'v) calculated in per cent of the total capital are equal; fn
other words, if the factors s' and v are inversely proportional
to one another in both cases.

They are unequal

1) if the per cent composition is equal and the rates of surplus-
value are unequal, in which case they are related as the rates of
surplus-value;

2) if the rates of surplus-value are the same and the per cent
composition is unequal, in which case they are related as the
variable portions of the capitals;

3) if the rates of surplus-value are unequal and the per cent
composition not the same, in which case they are related as the
products s'v, i.e., as the quantities of surplus-value calculated
in per cent of the total capital.10

10 The manuscript contains also very detailed calculations of the differ¬
ence between the rate' of surplus-value and the rate of profit (s' — p'), which
has very interesting peculiarities, and whose movement indicates where the
two rates draw apart or approach one another. These movements may also
be represented by curves. I am not reproducing this material, because it is
of less importance to the immediate purposes of this work, and because it
is enough here to call attention to this fact for readers who wish to pursue
this point further. — F. E.

CHAPTER IV

THE EFFECT OF THE TURNOVER
ON THE RATE OF PROFIT

[The effect of the turnover on the production of surplus-value,
and consequently of profit, has been discussed in Book II. Briefly
summarised it signifies that owing to the time span required for
turnover, not all the capital can be employed all at once in pro¬
duction; some of the capital always lies idle, either in the form
of money-capital, of raw material supplies, of finished but still
unsold commodity-capital, or of outstanding claims; that the
capital in active production, i.e., in the production and appro¬
priation of surplus-value, is always short by this amount, and
that the produced and appropriated surplus-value is always
curtailed to the same extent. The shorter the period of turnover,
the smaller this idle portion of capital as compared with the
whole, and the larger, therefore, the appropriated surplus-value,
provided other conditions remain the same.

It has already been shown in detail in Book II* how the
quantity of produced surplus-value is augmented by reductions
in the period of turnover, or of one of its two sections, in the time
of production and the time of circulation. But since the rate of
profit only expresses the relation of the produced quantity of
surplus-value to the total capital employed in its production, it
is evident that any such reduction increases the rate of profit.
Whatever has been said earlier in Part II of Book II in regard
to surplus-value, applies equally to profit and the rate of profit
and needs no repetition here. We wish only to stress a few of
the principal points.

The chief means of reducing the time of production is higher
labour productivity, which is commonly called industrial progress.
If this does not involve a simultaneous considerable increase in
the outlay of total capital resulting from the installation of
expensive machinery, etc., and thus a reduction of the rate of

• English edition: Vol. II, pp. 293-98. — Ed.

EFFECT OF TURNOVER ON RATE OF PROFIT

profit, which is calculated on the total capital, this rate must
rise. And this is decidedly true in the case of many of the latest
improvements in metallurgy and in the chemical industry. The
recently discovered methods of producing iron and steel, such as
the processes of Bessemer, Siemens, Gilcbrist-Thomas, etc., cut
to a minimum at relatively small costs the formerly arduous
processes. The making of alizarin, a red dye-stuff extracted from
coal-tar, requires but a few weeks, and this by means of already
existing coal-tar dye-producing installations, to yield the same
results which formerly required years. It took a year for the
madder to mature, and it was customary to let the roots grow
a few years more before they were processed.

The chief means of reducing the time of circulation is improved
communications. The last fifty years have brought about a revo¬
lution in this field, comparable only with the industrial revolution
of the latter half of the 18th century. On land the macadamised
road has been displaced by the railway, on sea the slow and irregu¬
lar sailing vessel has been pushed into the background by the
rapid and dependable steamboat line, and the entire globe is being
girdled by telegraph wires. The Suez Canal "has fully opened
East Asia and Australia to steamer traffic. The time of circulation
of a shipment of commodities to East Asia, at least twelve months
in 1847 (cf. Buch II, S. 235*), has now been reduced to almost
as many weeks. The twq large centres of the crises of 1825-57,
America and India, have been brought from 70 to 90 per cent
nearer to the European industrial countries by this revolution
in transport, and have thereby lost a good deal of their explosive
nature. The period of turnover of the total world commerce has
been reduced to the same extent, and the efficacy of the capital
involved in it has been more than doubled or trebled. It goes
without saying that this has not been without effect on the rate
of profit.

To single out the effect of the turnover of total capital on the
rate of profit we must assume all other conditions of the capitals
to be compared as equal. Aside from the rate of surplus-value
and the working-day it is also notably the per cent composition
which we must assume to be the same. Now let us take a capital
A composed of 80C-J-20? = 100 C, which makes two turnovers
yearly at a rate of surplus-value of 100%. The annual product
is then:

* English edition: Karl Marx, Capital, Vol. II, Moscow, 1957, pp. 251-
52. — Ed.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

160c+40T+40g. However, to determine the rate of profit we
do not calculate the 40, on the turned-over capital-value of 200,
but on the advanced capital of 100, and thus obtain p'=40%.

Now let us compare this with a capital B=160c-f40T=200 C,
which has the same rate of surplus-value of 100%, but which is
turned over only once a year. The annual product of this capital
is, therefore, the same as that of A:

160c+40t+40,. But this time the 40, are to be calculated on an
advance of capital amounting to 200, which yields a rate of
profit of only 20%, or one-half that of A.

We find, then, that for capitals with an equal per cent composi¬
tion, with equal rates of surplus-value and equal working-days,
the rates of profit of the two capitals are related inversely as
their periods of turnover. If either the composition, the rates of
surplus-value, the working-day, or the wages, are unequal in the
two compared cases, this would naturally produce further differ¬
ences in the rates of profit; but these are independent of the turnover
and, for this reason, do not concern us at this point. They have
already been discussed in Chapter III.

The direct effect of a reduced period of turnover on the pro¬
duction of surplus-value, and consequently of profit, consists of
an increased efficiency imparted thereby to the variable portion
of capital, as shown in Book II, Chapter XVI, “The Turnover
of Variable Capital”. This chapter demonstrated that a variable
capital of 500 turned over ten times a year produces as much
surplus-value in this time as a variable capital of 5,000 with
the same rate of surplus-value and the same wages, turned over
just once a year.

Take capital I, consisting of 10,000 fixed capital whose annual
depreciation is 10% = 1,000, of 500 circulating constant and 500
variable capital. Let the variable capital turn over ten times
per year at a 100% rate of surplus-value. For the sake of simplicity
we assume in all the following examples that the circulating
constant capital is turned over in the same time as the variable,
which is generally the case in practice. Then the product of one
such period of turnover will be:

100c (depreciation)+500c+500T-(- 500, =1,600
and the product of one entire year, with ten such turnovers, will be
l,000c (depreciation) -f 5,000c-f-5,000v+5,000s=16,000,

G = 11,000, s = 5,000, P'=-^ST = 45‘/11%.

EFFECT OF TURNOVER ON RATE OF PROFIT

Now let us take capital 11:9,000 fixed capital, 1,000 annual
wear and tear, 1,000 circulating constant capital, 1,000 variable
capital, 100% rate of surplus-value, 5 turnovers of variable
capital per year. Then the product of each of the turnovers of the
variable capital will be:

200c (depreciation) + 1 ,000c + 1 ,000v + 1 ,000s =3,200,
and the total annual product after five turnovers:

l,000c (depreciation)+5,000c-f-5,000T+5,000s = 16,000,

C = 11,000, s = 5,000, P' = 1^- = 458/11%.

Further, take capital III with no fixed capital, 6,000 circulating
constant capital and 5,000 variable capital. Let there be one turn¬
over per year at a 100% rate of surplus-value. Then the total
annual product is:

6,000c+5,000v+5,000s =16,000,

C = 11,000, s = 5,000, p'=1^- = 455/11o/0.

In all the three cases- we therefore have the same annual quan¬
tity of surplus-value =5,000, and, since the total capital is like¬
wise equal in all three cases, namely =11, 000, also the same
rate of profit of 45 6/n%.

But should capital I have only 5 instead of 10 turnovers of its
variable part per year, the result would be different. The product
of one turnover would then be:

200c (depreciation)+500c4-500T+5008= 1,700.

And the annual product:

l,000c (depreciation)-f-2,500c+2,500T-|-2,5008=8,500,

C = 11,000, s = 2,500; pW = 228/u % .

The rate of profit has fallen one-half, because the period of
turnover has doubled.

The quantity of surplus-value appropriated in one year is
therefore equal to the quantity of surplus-value appropriated in
one turnover of the variable capital multiplied by the number of
such turnovers per year. Suppose we call the surplus-value, or
profit, appropriated in one year S, the surplus-value appropriated
in one period of turnover s, the number of turnovers of the

CONVERSION OF SURPLUS-VALUE INTO PROFIT

variable capital in one year n, then S=sn, and the annual rate
of surplus-value S'=s'n, as already demonstrated in Book II,
Chapter XVI, I.*

It goes without saying that the formula p'=s'-^-=s'— is

c {-v

correct only so long as the v in the numerator is the same as that
in the denominator. In the denominator v stands for the entire
portion of the total capital used on an average as variable capital
for the payment of wages. The v of the numerator is primarily only
determined by the fact that a certain quantity of surplus-value— s

is produced and appropriated by it, whose relation to it is m',
the rate of surplus-value. It is only along these lines that the for¬
mula p' = — 7 — is transformed into the other: p' = s'— r— • The v of
r c-fv r c-fv

the numerator will now be more accurately determined by the fact
that it must equal the v of the denominator, that is, the entire

variable portion of capital C. In other words, the equation p' = -^-

may be correctly transformed into the equation p' = s'— — - only if

s stands for surplus-value produced in one turnover of the variable
capital. Should s be only a portion of this surplus-value, then
s=s'v is still correct, but this v is then smaller than the v in C=
=c+v, because it is smaller than the entire variable capital ex¬
pended for wages. But should s stand for more than the surplus-
value of one turnover of v, then 'a portion of this v, or perhaps
the whole of it, serves twice, namely in the first and in the second
turnover, and eventually in subsequent turnovers. The v which
produces the surplus-value and represents the sum of all paid
wages, is therefore greater than the v in c+v and the calculation
falls into error.

To make the formula precise for the annual rate of profit, we
must substitute the annual rate of surplus-value for the simple
rate of surplus-value, that is, substitute S' or S'n for s'. In other
words, we must multiply the rate of surplus-value s', or, what
amounts to the same thing, the variable capital v contained in
C, by n, the number of turnovers of this variable capital in one

Thus we obtain p'=s'n which is

the formula for the

year.

annual rate of profit.

The amount of variable capital invested in his business is some
thing the capitalist himself does not know in most cases. We have
• English edition: Vol. II, p. 305 .—Ed.

EFFECT OF TURNOVER ON RATE OF PROFIT

seen in Chapter VIII of Book II, and shall see further along, that
the only essential distinction within his capital which impresses
itself upon the capitalist is that of fixed and circulating capital.
He takes money to pay wages from his cash-box containing the
part of the circulating capital he has on hand in the form of
money, so far as it is not deposited in a bank; he takes money from
the same cash-box for raw and auxiliary materials, and credits
both items to the same cash-account. And even if he should keep
a separate account for wages, at the close of the year this would
only show the sum paid out for this item, hence vn, but not the
variable capital v itself. In order to ascertain this, he would have
to make a special calculation, of which we propose here to give
an illustration.

For this purpose we select the cotton spinnery of 10,000 mule
spindles described in Book I (S. 209/201)* and assume that the
data given there for one week of April 1871, are in force during
the whole year. The fixed capital incorporated in the machinery
was £10,000. The circulating capital was not given. We assume
it tojhave been £2,500. This is a rather high estimate, but justified
by the assumption, which we must always make here, that no
credit operations were effected, hence no permanent or temporary
employment of other people’s capital. The value of the weekly
product was composed of £20 for depreciation of machinery,
£358 circulating constant advanced capital (rent £6; cotton
£342; coal, gas, oil, £10), £52 variable capital paid out for wages,
and £80 surplus-value. Therefore,

20c (depreciation)+358c+52v+80s=510.

The weekly advance of circulating capital therefore was 358c-r
-f-52v=410. In terms of per cent this was 87.3C+12.7V. For the
entire circulating capital of £2,500 this would be £2,182 constant
and £318 variable capital. Since the total expenditure for wages
in one year was 52 times £52, or £2,704, it follows that in a year
the variable capital of £318 was turned over almost exactly
times. The rate of surplus-value was 8 °/62=153n/ls %. We calcu¬
late the rate of profit on the basis of theSe elements by inserting

the above values in the formula p'=s'n-^- : s'=153ll/13, n=81/I,

v = 318, C=12,500; hence:

P' = 153%, X 8V, X ^1^-= 33.27%.

• English edition: p. 219. — Ed.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

We test this by means of the simple formula p'=-|r. The total

annual surplus-value or profit amounts to 52 times £80, or £4,160,
and this divided by the total capital of £12,500 gives us 33.28%,
or almost an identical result. This is an abnormally high rate of
profit, which may only be explained by extraordinarily favourable
conditions of the moment (very low prices of cotton along with
very high prices of yarn), and could certainly not have obtained
throughout the year.

The s'n in the formula p'=s'n^- stands, as has been said, for the

thing called in Book II* the annual rate of surplus-value. In the
above case it is 153ll/13% multiplied by 8VS, or in exact figures,
1,307#/1S%. Thus, if a certain Biedermann** was shocked by the
abnormity of an annual rate of surplus-value of 1,000% used as
an illustration in Book II, he will now perhaps be pacified by
this annual rate of surplus-value of more than 1,300% taken
from the living experience of Manchester. In times of greatest
prosperity, such as we have not indeed seen for a long time, such
a rate is by no means a rarity.

For that matter we have here an illustration of the actual
composition of capital in modern large-scale industry. The total
capital is broken up into £12,182 constant and £318 variable
capital, a sum of £12,500. In terms of percent this is 971/*c+2,/St =
= 100 C. Only one-fortieth of the total, but in more than an eight¬
fold annual turnover, serves for the payment of wages.

Since very few capitalists ever think of making calculations of
this sort with reference to their own business, statistics is almost
completely silent about the relation of the constant portion of the
total social capital to its variable portion. Only the American
census gives what is possible under modern conditions, namely
the sum of wages paid in each line of business and the profits
realised. Questionable as they may be, being based on the capi¬
talist’s own uncontrolled statements, they are nevertheless very
valuable and the only records available to us on this subject. [In
Europe we are far too delicate to expect such revelations from
our major capitalists. — F.E.]

* English edition: Vol. II, p. 295.— Ed.

** Biedermann — Philistine. A pun, being also the name of the editor of
the Deutsche Allgemeine Zeilung. — Ed.

CHAPTER V

ECONOMY IN THE EMPLOYMENT
OF CONSTANT CAPITAL

I. IN GENERAL

The increase of absolute surplus-value, or the prolongation of
surplus-labour, and thus of the working-day, while the variable
capital remains the same and thus employs the same number of
labourers at the same nominal wages, regardless of whether over¬
time is paid or not, reduces the relative value of the constant cap¬
ital as compared to the total and the variable capital, and thereby
increases the rate of profit, again irrespective of the growth of the
quantity of surplus-value and a possibly rising rate of surplus-
value. The volume of the fixed portion of constant capital, such
as factory buildings, machinery, etc., remains the same, no
matter whether these serve the labour-process 16 or 12 hours.
A prolongation of the working-day does not entail any fresh
expenditures in this, the most expensive portion of constant
capital. Furthermore, the value of the fixed capital is thereby
reproduced in a smaller number of turnover periods, so that the
time for which it must be advanced to make a certain profit is
abbreviated. A prolongation of the working-day therefore in¬
creases the profit, even if overtime is paid, or even if, up to a
certain point, it is better paid than the normal hours of labour.
The ever-mounting need to increase fixed capital in modern in¬
dustry was therefore one of the main reasons prompting profit-mad
capitalists to lengthen the working-day.11 The same conditions
do not obtain if the working-day is constant. Then it is neces¬
sary either to increase the number of labourers, and with them to

11 “Since in all factories there is a very large amount of Gxed capital
in buildings and machinery, the greater the number of hours that machinery
can be kept at work the greater will be the return.” (Reports of Insp. of
Fact-, 31st October, 1858, p. 8.)

CONVERSION OF SURPLUS-VALUE INTO PROFIT

a certain extent the amount of fixed capital, the buildings, ma¬
chinery, etc., in order to exploit a greater quantity of labour
(for we leave aside deductions from wages or the depression of
wages below their normal level), or, if the intensity and, con¬
sequently, the productivity of labour, increase and, generally,
more relative surplus-value is produced, the magnitude of the
circulating portion of constant capital increases in such industrial
branches which use raw materials, since more raw material,
etc., is processed in a given time; and, secondly, the amount
of machinery set in motion by the same number of labourers,
therefore also this part of constant capital, increases as well.
Hence, an increase in surplus-value is accompanied by an increase
in constant capital, and the growing exploitation of labour by
greater outlays of the means of production through which labour
is exploited, i.e., by a greater investment of capital. Therefore,
the rate of profit is thereby reduced on the one hand while it
increases on the other.

Quite a number of current expenses remain almost or entire¬
ly the same whether the working-day is longer or shorter. The
cost of supervision is less for 500 working-men during 18 working-
hours than for 750 working-men during 12 working-hours. “The
expense of working a factory 10 hours almost equals that of work¬
ing it 12.” (Reports of Insp. of Fact., October 1848, p. 37.) State
and municipal taxes, fire insurance, wages of various permanent
employees, depreciation of machinery, and various other expenses
of a factory, remain unchanged whether the working-time is long
or short. To the extent to which production decreases, these ex¬
penses rise as compared to the profit. (Reports of Insp. of Fact.,
October 1862, p. 19.)

The period in which the value of the machinery and of the other
components of fixed capital is reproduced is determined in practice
not by their mere lifetime, but by the duration of the entire
labour-process during which they serve and wear out. If the la¬
bourers must work 18 instead of 12 hours, this makes a difference
of three days more per week, so that one week is stretched into
one and a half, and two years into three. If this overtime is unpaid
the labourers give away gratis a week out of every three and a
year out of every three on top of the normal surplus-labour time.
In this way, the reproduction of the value of the machinery is
speeded up 50% and accomplished in two-thirds of the usually
required time.

To avoid useless complications, we proceed in this analysis, and
in that of price fluctuations for raw materials (Chap. VI), from the

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

assumption that the mass and rate of surplus-value are given.

As already shown in the presentation of co-operation, division
of labour and machinery, the economy of production conditions*
found in large-scale production is essentially due to the fact that
these conditions prevail as conditions of social, or socially com¬
bined, labour, and therefore as social conditions of labour. They
are commonly consumed in the process of production by the
aggregate labourer, instead of being consumed in small fractions
by a mass of labourers operating disconnectedly or, at best,
directly co-operating on a small scale. In a large factory with
one or two central motors the cost of these motors does not in¬
crease in the same ratio as their horse-power and, hence, their
possible sphere of activity. The cost of the transmission equip¬
ment does not grow in the same ratio as the total number of work¬
ing machines which it sets in motion. The frame of a machine
does not become dearer in the same ratio as the mounting number
of tools which it employs as its organs, etc. Furthermore, the
concentration of means of production yields a saving on buildings
of various kinds not only for the actual workshops, but also
for storage, etc. The same applies to expenditures for fuel, light¬
ing, etc. Other conditions of production remain the same, whether
used by many or by few.

This total economy, arising as it does from the concentration of
means of production and their use en masse, imperatively requires,
however, the accumulation and co-operation of labourers, i.e.,
a social combination of labour. Hence, it originates quite as much
from the social nature of labour, just as surplus-value originates
from the surplus-labour of the individual labourer considered
singly. Even the continual improvements, which are here pos¬
sible and necessary, are due solely to the social experience and
observation ensured and made possible by production of aggregate
labour combined on a large scale.

The same is true of the second big source of economy in the con¬
ditions of production. We refer to the reconversion of the excre¬
tions of production, the so-called waste, into new elements of
production, either of the same, or of some other line of industry;
to the processes by which this so-called excretion is thrown back
into the cycle of production and, consequently, consumption,
whether productive or individual. This line of savings, which
we shall later examine more closely, is likewise the result of
large-scale social labour. It is the attendant abundance of this

• English edition: Vol. 1, pp. 324-25 .—Ed.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

waste which renders it available again for commerce and thereby
turns it into new elements of production. It is only as waste of
combined production, therefore, of large-scale production, that
it becomes important to the production process and remains a
bearer of exchange-value. This waste, aside from the services
which it performs as new element of production, reduces the cost
of the raw material to the extent to which it is again saleable,
for this cost always includes the normal waste, namely the
quantity ordinarily lost in processing. The reduction of the cost
of this portion of constant capital increases pro tanto the rate
of profit, assuming the magnitude of the variable capital and the
rate of surplus-value to be given.

If the surplus-value is given, the rate of profit can be increased
only by reducing the value of the constant capital required for
commodity-production. So far as constant capital enters into
the production of commodities, it is not its exchange-value,
but its use-value alone, which matters. The quantity of labour
which flax can absorb in a spinnery does not depend on its value,
but on its quantity, assuming the productivity of labour, i.e.,
the level of technical development, to be given. In like manner
the assistance rendered by a machine to, say, three labourers
does not depend on its value, but on its use-value as a machine.
On one level of technical development a bad machine may be
expensive and on another a good machine may be cheap.

The increased profit received by a capitalist through the cheap¬
ening of, say, cotton and spinning machinery, is the result of
higher labour productivity; not in the spinnery, to be sure, but
in cotton cultivation and construction of machinery. It requires
smaller outlays of the conditions of labour to incorporate a given
quantity of labour, and hence to extract a given quantity of
surplus-labour. The costs required to appropriate a certain
quantity of surplus-labour diminish.

We have already mentioned savings yielded in the production
process through co-operative use of means of production by the ag¬
gregate, or socially combined, labour. Other savings of constant
capital arising from the shortening of the time of circulation in
which the development of means of communication is a dominant
material factor will be discussed later. At this point we shall
deal with the savings yielded by continuous improvements of
machinery, namely 1) of its material, e.g., the substitution of
iron for wood; 2) the cheapening of machinery due to the general
improvement of machine-building; so that, although the value
of the fixed portion of constant capital increases continually

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

with the development of labour on a large scale, it does not in¬
crease at the same rate12; 3) special improvements enabling exist¬
ing machinery to work more cheaply and effectively; for instance,
improvements of steam-boilers, etc., which will be discussed
later on in greater detail; 4) reduction of waste through better
machinery.

Whatever reduces the wear of machinery, and of fixed capital in
general, for any given period of production, cheapens not only the
individual commodity, in view of the fact that in its price every
individual commodity reproduces its aliquot share of this depre¬
ciation, but reduces also the aliquot portion of the invested
capital for this period. Repair work, etc., to the extent that it
becomes necessary, is added to the original cost of the machin¬
ery. A reduction in repair costs, due to greater durability of the
machinery, lowers pro tanto the price of this machinery.

It may again be said of all these savings that they are largely
possible only for combined labour, and are often not realised
until production is carried forward on a still larger scale, so
that they require an even greater combination of labour in the
immediate process of production.

However, on the other hand the development of the productive
power of labour in any one line of production, e.g., the production
of iron, coal, machinery, in architecture, etc., which may again be
partly connected with progress in the field of intellectual produc¬
tion, notably natural science and its practical application, appears
to be the premise for a reduction of the value, and consequently of
the cost, of means of production in other lines of industry, e.g.,
the textile industry, or agriculture. This is self-evident, since a
commodity which is the product of a certain branch of industry
enters another as a means of production. Its greater or lesser price
depends on the productivity of labour in the line of production
from which it issues as a product, and is at the same time a factor
that not only cheapens the commodities into whose production
it goes as a means of production, but also reduces the value of
the constant capital whose element it here becomes, and thereby
one that increases the rate of profit.

The characteristic feature of this kind of saving of constant
capital arising from the progressive development of industry is
that the rise in the rate of profit in one line of industry depends on
the development of the productive power of labour in another.
Whatever falls to the capitalist’s advantage in this case is once

14 Cf. Ure on the progress in factory construction.

CONVERSION OF SURPLUS-VALUE INTO PROFIT

more a gain produced by social labour, if not a product of the
labourers he himself exploits. Such a development of productive
power is again traceable in the final analysis to the social nature
of the labour engaged in production; to the division of labour in
society; and to the development of intellectual labour, especially
in the natural sciences. What the capitalist thus utilises are the
advantages of the entire system of the social division of labour.
It is the development of the productive power of labour in its
exterior department, in that department which supplies it with
means of production, whereby the value of the constant capital
employed by the capitalist is relatively lowered and consequently
the rate of profit is raised.

Another rise in the rate of profit is produced, not by savings
in the labour creating the constant capital, but by savings in the
application of this capital itself. On the one hand, the concentra¬
tion of labourers, and their large-scale co-operation, saves constant
capital. The same buildings, and heating and lighting appliances,
etc., cost relatively less for the large-scale than for small-scale
production. The same is true of power and working machinery.
Although their absolute value increases, it falls in comparison to
the increasing extension of production amd the magnitude of the
variable capital, or the quantity of labour-power set in motion.
The economy realised by a certain capital within its own line of
production is first and foremost an economy in labour, i.e., a
reduction of the paid labour of its own labourers. The previously
mentioned economy, on the other hand, is distinguished from
this one by the fact that it accomplishes the greatest possible
appropriation of other people’s unpaid labour in the most
economical way, i.e., with as little expense as the given scale of
production will permit. Inasmuch as this economy does not rest
with the previously mentioned exploitation of the productivity
of the social labour employed in the production of constant capi¬
tal, but with the economy in the constant capital itself, it springs
either directly from the co-operation and social form of labour
within a certain branch of production, or from the production of
machinery, etc., on a scale in which its value does not grow at the
same rate as its use-value.

Two points must be borne in mind here: It the value of c=zero,
then p'=s', and the rate of profit would be at its maximum.
Second, however, the most important thing for the direct exploita¬
tion of labour itself is not the value of the employed means of
exploitation, be they fixed capital, raw materials or auxiliary
substances. In so far as they serve as means of absorbing labour,

ECONOMY IN EMPLOYMENT OP CONSTANT CAPITAL

as media in or by which labour and, hence, surplus-labour are
materialised, the exchange-value of machinery, buildings, raw
materials, etc., is quite immaterial. What is ultimately essential
is, on the one hand, the quantity of them technically required
for combination with a certain quantity of living labour, and,
on the other, their suitability, i.e., not only good machinery,
but also good raw and auxiliary materials. The rate of profit
depends partly on the good quality of the raw material. Good
material produces less waste. Less raw materials are then needed
to absorb the same quantity of labour. Furthermore, the resistance
to be overcome by the working machine is also less. This partly
affects even the surplus-value and the rate of surplus-value. The
labourer needs more time when using bad raw materials to process
the same quantity. Assuming wages remain the same, this causes
a reduction in surplus-labour. This also substantially affects the
reproduction and accumulation of capital, which depend more
on the productivity than on the amount of labour employed,
as shown in Book I (S. 627/619 ff.).*

The capitalist’s fanatical insistence on economy in means of
production is therefore quite understandable. That nothing is
lost or wasted and the means of production are consumed only in
the manner required by production itself, depends partly on the
skill and intelligence of the labourers and partly on the discipline
enforced by the capitalist for the combined labour. This disci¬
pline will become superfluous under a social system in which the
labourers work for their own account, as it has already become
practically superfluous in piece-work. This fanatical insistence
comes to the surface also conversely in the adulteration of the
elements of production, which is one of the principal means of
lowering the relation of the value of the constant capital to the
variable capital, and thus of raising the rate of profit. Whereby
the sale of these elements of production above their value, so far
as this reappears in the product, acquires a marked element of
cheating. This practice plays an essential part particularly in
German industry, whose maxim is: People will surely appreciate
if we send' them good samples at first, and then inferior goods
afterward. However, as these matters belodg to the sphere of
competition they do not concern us here.

It should be noted that this raising of the rate of profit by means
of lowering the value of the constant capital, i.e., by reducing its
expensiveness, does not in any way depend on whether the branch

English edition: p. 603.— Ed.

g/, CONVERSION OF SURPLUS-VALUE INTO PROFIT

of industry in which it takes place produces luxuries, or necessi¬
ties for the consumption of labourers, or means of production
generally. This last circumstance would only be of material
importance if it were a question of the rate of surplus-value,
which depends essentially on the value of labour-power, i.e.,
on the value of the customary necessities of the labourer. But
in the present case the surplus-value and the rate of surplus-
value have been assumed as given. The relation of surplus-value
to total capital — and this determines the rate of profit — depends
under these circumstances exclusively on the value of the
constant capital, and in no way on the use-value of the elements
of which it is composed.

A relative cheapening of the means of production does not, of
course, exclude the possible increase of their absolute aggregate
value, for the absolute volume in which they are employed grows
tremendously with the development of the productive power of
labour and the attendant growth of the level of production.
Economy in the use of constant capital, from whatever angle
it may be viewed, is, in part, the exclusive result of the fact
that the means of production function and are consumed as joint
means of production of the combined labourer, so that the result¬
ing saving appears as a product of the social nature of directly
productive labour; in part, however, it is the result of developing
productivity of labour in spheres which supply capital with its
means of production, so that if we view the total labour in rela¬
tion to total capital, and not simply the labourers employed by
capitalist X in relation to capitalist Y, this economy presents
itself once more as a product of the development of the produc¬
tive forces of social labour, with the only difference that capital¬
ist X enjoys the advantage not only of the productivity of labour
in his own establishment, but also of that in other establishments.
Yet the capitalist views economy of his constant capital as a
condition wholly independent of, and entirely alien to, his
labourers. He is always well aware, however, that the labourer has
something to do with the employer buying much or little labour
with the same amount of money (for this is how the transaction
between the capitalist and labourer appears in his mind). This
economy in the application of the means of production,
this method of obtaining a certain result with a minimum outlay
appears more than any other inner power of labour as an inherent
power of capital and a method peculiar and characteristic of
the capitalist mode of production.

This conception is so much the less surprising since it appears

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

to accord with fact, and since the relationship of capital actually
conceals the inner connection behind the utter indifference,
isolation, and alienation in which they place the labourer
vis-a-vis the means incorporating his labour.

First, the means of production that make up the constant capi¬
tal represent only the money belonging to the capitalist (just as
the body of the Roman debtor represented the money of his credi¬
tor, according to Linguet*) and are related to him alone, while the
labourer, who comes in contact with them only in the direct
process of production, deals with them as use-values of production
only, as means of labour and materials of production. Increase or
decrease of their value, therefore, has as little bearing on his rela¬
tions to the capitalist as the circumstance whether he may be
working with copper or iron. For that matter, the capitalist likes
to view this point differently, as we shall later indicate, whenever
the means of production gain in value and thereby reduce his
rate of profit.

Second, in so far as these means of production in the capitalist
production process are at the same time means of exploiting
labour, the labourer is no more concerned with their relative
dearness or cheapness than a horse is concerned with the dearness
or cheapness of its bit and bridle.

Finally, we have earlier** seen that, in fact, the labourer looks
at the social nature of his labour, at its combination with the
labour of others for a common purpose, as he would at an alien
power; the condition of realising this combination is alien pro¬
perty, whose dissipation would be totally indifferent to him if
he were not compelled to economise with it. The situation is
quite different in factories owned by the labourers themselves,
as in Rochdale, for instance.

It scarcely needs to be mentioned, then, that as far as concerns
the productivity of labour in one branch of industry as a lever for
cheapening and improving the means of production in another,
and thereby raising the rate of profit, the general interconnection
of social labour affects the labourers as a matter alien to them, a
matter that actually concerns the capitalist alone, since it is he
who buys and appropriates these means of production. The fact
that he buys the product of labourers in another branch of industry
with the product of labourers in his own, and that he therefore dis-

* [Linguet] Theorie des loix civiles, ou principes fondamentaux de la
societe, tome II, Londres, 1767, livre V, chapitre XX. — Ed.

** English edition: Vol. I, p. 325. — Ed.

4—2494

CONVERSION OF SURPLUS-VALUE INTO PROFIT

poses of the product of the labourers of another capitalist only by
gratuitously appropriating that of his own, is a development that
is fortunately concealed by the process of circulation, etc.

Moreover, since production on a large scale develops for the
first time in its capitalist form, the thirst for profits on the one
hand, and competition on the other, which compels the cheapest
possible production of commodities, make this economy in the
employment of constant capital appear as something peculiar to
the capitalist mode of production and therefore as a function of
the capitalist.

Just as the capitalist mode of production promotes the develop¬
ment of the productive powers of social labour, on the one hand,
so does it whip on to economy in the employment of constant
capital on the other.

However, it is not only the alienation and indifference* that
arise between the labourer, the bearer of living labour, and the
economical, i.e., rational and thrifty, use of the material condi¬
tions of his labour. In line with its contradictory and antagonistic
nature, the capitalist mode of production proceeds to count the
prodigious dissipation of the labourer’s life and health, and
the lowering of his living conditions, as an economy in the use of
constant capital and thereby as a means of raising the rate
of profit.

Since the labourer passes the greater portion of his life in the
process of production, the conditions of the production process
are largely the conditions of his active living process, or his living
conditions, and economy in these living conditions is a method
of raising the rate of profit; just as we saw earlier* that over¬
work, the transformation of the labourer into a work horse, is
a means of increasing capital, or speeding up the production of
surplus-value. Such economy extends to overcrowding close and
unsanitary premises with labourers, or, as capitalists put it, to
space saving; to crowding dangerous machinery into close quart¬
ers without using safety devices; to neglecting safety rules in
production processes pernicious to health, or, as in mining, bound
up with danger, etc. Not to mention the absence of all provisions
to render the production process human, agreeable, or at least
bearable. From the capitalist point of view this would be quite
a useless and senseless waste. The capitalist mode of production
is generally, despite all its niggardliness, altogether too prodigal
with its human material, just as, conversely, thanks to its method

* English edition: Vol. I, pp. 231-302. — Ed.

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

of distribution of products through commerce and manner of
competition, it is very prodigal with its material means, and
loses for society what it gains for the individual capitalist.

Just as capital has the tendency to reduce the direct employ¬
ment of living labour to no more than the necessary labour, and
always to cut down the labour required to produce a commodity
by exploiting the social productiveness of labour and thus to
save a maximum of directly applied living labour, so it has also
the tendency to employ this labour, reduced to a minimum,
under the most economical conditions, i.e., to reduce to its
minimum the value of the employed constant capital. If it is the
necessary labour-time which determines the value of commod¬
ities, instead of all the labour-time contained in them, so it is
the capital which realises this determination and, at the same
time, continually reduces the labour-time socially necessary to
produce a given commodity. The price of the commodity is there¬
by lowered to its minimum since every portion of the labour
required for its production is reduced to its minimum.

We must make a distinction in economy as regards use of con¬
stant capital. If the quantity, and consequently the sum of the
value of employed capital, increases, this is primarily only a con¬
centration of more capital in a single hand. Yet it is precisely this
greater quantity applied by a single source— attended, as a rule,
by an absolutely greater but relatively smaller amount of
employed labour — which permits economy of constant capital. To
take an individual capitalist, the volume of the necessary invest¬
ment of capital, especially of its fixed portion, increases. But its
value decreases relative to the mass of worked-up materials and
exploited labour.

This is now to be briefly illustrated by a few examples. We shall
begin at the end — the economy in the conditions of production, in
so far as these also constitute the living conditions of the labourer.

II. SAVINGS IN LABOUR CONDITIONS
AT THE EXPENSE OF THE LABOURERS.

COAL MINES. NEGLECT OF INDISPENSABLE OUTLAYS

“Under the competition which exists among the coal-owners
and coal-proprietors ... no more outlay is incurred than is suf¬
ficient to overcome the most obvious physical difficulties; and
under that which prevails among the labouring colliers, who are
ordinarily more numerous than the work to be done requires,
a large amount of danger and exposure to the most noxious

CONVERSION OF SURPLUS-VALUE INTO PROFIT

influences will gladly be encountered for wages a little in advance
of the agricultural population round them, in an occupation,
in which they can moreover make a profitable use of their
children. This double competition is quite sufficient ... to cause a
large proportion of the pits to be worked with the most imperfect
drainage and ventilation: often with ill-constructed shafts, bad
gearing, incompetent engineers; and ill-constructed and ill-pre¬
pared bays and roadways; causing a destruction of life, and
limb, and health, the statistics of which would present an appalling
picture. ” (First Report on Children's Employment in Mines
and Collieries, etc., April 21, 1829, p. 102.) About 1860, a weekly
av.erage of 15 men lost their lives in the English collieries.
According to the report on Coal Mines Accidents (February 6, 1862),
a total of 8,466 were killed in the ten years 1852-61. But the report
admits that this number is far too low, because in the first few
years, when the inspectors had just been installed and their dis¬
tricts were far too large, a great many accidents and deaths were
not reported. The very fact that the number of accidents, though
still very high, has decreaged markedly since the inspection sys¬
tem was established, and this in spite of the limited powers and
insufficient numbers of the inspectors, demonstrates the natural
tendency of capitalist exploitation. These human sacrifices are
mostly due to the inordinate avarice of the mine owners. Very
often they had only one shaft sunk, so that apart from the lack
of effective ventilation there was no escape were this shaft to
become obstructed.

Capitalist production, when considered in isolation from the
process of circulation and the excesses of competition, is very eco¬
nomical with the materialised labour incorporated in commod¬
ities. Yet, more than any other mode of production, it squanders
human lives, or living labour, and not only blood and flesh, but
also nerve and brain. Indeed, it is only by dint of the most
extravagant waste of individual development that the development
of the human race is at all safeguarded and maintained in the
epoch of history immediately preceding the conscious reorgani¬
sation of society. Since all of the economising here discussed
arises from the social nature of labour, it is indeed just this di¬
rectly social nature of labour which causes the waste of life and
health. The following question suggested by factory inspector
R. Baker is characteristic in this respect: “The whole question
is one for serious consideration, and in what way this sacrifice
of infant life occasioned by congregational labour can be best
averted?” (Reports of Insp. of Fact., October 1863, p. 157.)

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

Factories. Under this heading there is covered the disregard for
safety measures to ensure the security, comfort, and health of
labourers also in the actual factories. It is to blame for a large
portion of the casualty lists containing the wounded and killed
industrial workers (cf. the annual factory reports). Similarly,
lack of space, ventilation, etc.

As far back as October 1855, Leonard Homer complained about
the resistance of very many manufacturers to the legal require¬
ments concerning safety devices on horizontal shafts, although the
danger was continually emphasised by accidents, many of them
fatal, and although these safety devices did not cost much and
did not interfere with production. (Reports of Insp. of Fact.,
October 1855, p. 6.) In their resistance against these and other
legal requirements the manufacturers were openly seconded by
the unpaid justices of the peace, who were themselves mostly
manufacturers or friends of manufacturers, and handed down
their decisions accordingly. What sort of verdicts these gentlemen
handed down was revealed by Superior Judge Campbell, who
said with reference to one of them, against which an appeal had
been made to him: “It is not an interpretation of the Act of Par¬
liament, it is a repeal of the Act of Parliament” (loc. cit., p. 11).
Horner states in the same report that in many factories labourers
are not warned when machinery is about to be started up. Since
there is always something to be done about machinery even when
it is not operating, fingers and hands are always occupied with
it, and accidents happen continually due to the mere omission
of a warning signal (loc. cit., p. 44). The manufacturers had a
trades-union at the time to oppose factory legislation, the so-
called National Association for the Amendment of the Factory
Laws in Manchester, which in March 1855 collected more than
£50,000 by assessing 2 shillings per horse-power, to pay for the
court proceedings against its members started by factory
inspectors, and to conduct the cases in the name of the union.
It was a matter of proving that killing was not murder* when it
occurred for the sake of profit. A factory inspector for Scotland,
Sir John Kincaid, tells about a certain firm in Glasgow which
used the iron scrap at its factory to make protective shields for
all its machinery, the cost amounting to £9 Is. Joining the
manufacturers’ union would have cost it an assessment of £11
for its 110 horse-power, which was more than the cost of all its

* Allusion to the pamphlet “Killing no Murder” which appeared in
England in 1657. Its author was the leveller Edward Sexby .—Ed.

90 CONVERSION OP SURPLUS-VALUE INTO PROFIT

protective appliances. But the National Association had been
organised in 1854 for the express purpose of opposing the law which
prescribed such protection. The manufacturers had not paid the
least heed to it during the whole period from 1844 to 1854. When
the factory inspectors, at instructions from Palmerston, then
informed the manufacturers that the law would be enforced in
earnest, the manufacturers instantly founded their association,
many of whose most prominent members were themselves justices
of the peace and in this capacity were supposed to enforce the
law. When in April 1855 the new Minister of the Interior, Sir
George Grey, offered a compromise under which the government
would be content with practically nominal safety appliances
the Association indignantly rejected even this. In various law¬
suits the famous engineer William Fairbairn threw the weight
of his reputation behind the principle of economy and in defence
of the freedom of capital which had been violated. The head of
factory inspection, Leonard Horner, was persecuted and maligned
by the manufacturers in every conceivable manner.

But the manufacturers did not rest until they obtained a writ of
the Court of Queen’s Bench, according to which the Law of 1844
did not prescribe protective devices for horizontal shafts installed
more than seven feet above the ground and, finally, in 1856 they
succeeded in securing an Act of Parliament entirely satisfactory to
them in the circumstances, through the services of the bigot Wilson
Patten, one of those pious souls whose display of religion is
always ready to do the dirty work for the knights of the money-bag.
This Act practically deprived the labourers of all special protec¬
tion and referred them to the common courts for compensation in
the event of industrial accidents (sheer mockery in view of the
excessive cost of English lawsuits), while it made it almost im¬
possible for the manufacturer to lose the lawsuit by providing in
a finely-worded clause for expert testimony. The result was a
rapid increase of accidents. In the six months from May to October
1858, Inspector Baker reported that accidents increased by 21%
compared with the preceding half-year. In his opinion 36.7% of
these accidents might have been avoided. It is true that the num¬
ber of accidents in 1858 and 1859 was considerably below that
of 1845 and 1846. It was actually 29% less although the number
of labourers in the industries subject to inspection had increased
20%. But what was the reason for this? In so far as this issue
has been settled now (1865), it was mainly accomplished
through the introduction of new machinery already provided with
safety devices to which the manufacturer did not object because

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

they cost him no extra expense. Furthermore, a few labourers
succeeded in securing heavy damages for their lost arms, and
had this judgement upheld even by the highest courts. (Reports
of Insp. of Fact., April 30, 1861, p. 31, ditto April 1862, p. 17.)

So much for economy in devices protecting the life and limbs of
labourers (among whom many children) against the dangers of
handling and operating machinery.

Work in enclosed places generally. It is well known to what
extent economy of space, and thus of buildings, crowds labourers
into close quarters. In addition, there is also economy in means
of ventilation. Coupled with the long working-hours, the two
cause a large increase in diseases of the respiratory organs, and
an attendant increase in the death-rate. The following illustra¬
tions have been taken from Reports on Public Health, 6th report,
1863. This report was compiled by Dr. John Simon, well known
from our Book I.

Just as combination and co-operation of labour permits large-
scale employment of machinery, concentration of means of pro¬
duction, and economy in their use, it is this very working together
en masse in enclosed places and under conditions rather determined
by ease of manufacture than by health requirements— it is this
mass concentration in one and the same workshop that acts, on
the one hand, as a source of greater profits for the capitalist and,
on the other, unless counteracted by a reduced number of hours
and special precautions, as the cause of the squandering of the
lives and health of the labourers.

Dr. Simon formulates the following rule and backs it up with
abundant statistics: “In proportion as the people of a district are
attracted to any collective indoor occupation, in such proportion,
other things being equal, the district death-rate by lung diseases
will be increased” (p. 23). The cause is bad ventilation. “And
probably in all England there is no exception to the rule, that,
in every district which has a large indoor industry, the increased
mortality of the workpeople is such as to colour the death-return of
the whole district with a marked excess of lung disease” (p. 23).

Mortality figures for industries carried on in enclosed places,
collected by the Board of Health in 1860 and 1861, indicate that
for the same number of men between the ages of 15 and 55, for
which the death-rate from corisumption and other pulmonary
diseases in English agricultural districts is 100, the death-rate
in Coventry is 163, in Blackburn and Skipton 167, Congleton
and Bradford 168, Leicester 171, Leek 182, Macclesfield 184,
Bolton 190, Nottingham 192, Rochdale 193, Derby 198, Salford

92 CONVERSION OF SURPLUS-VALUE INTO PROFIT

and Ashton-under-Lyne 203, Leeds 218, Preston 220, and Man¬
chester 263 (p. 24). The following table presents a still more
striking illustration.

District

Chief industry

Deaths from
pulmonary diseases
between the ages
of 15 and 25. per
100.000 population

Men

Women

Berkhampstead

Straw plaiting (women) . . .

219

578

Leighton Buzzard

Straw plaiting (women) . . .

309

554

Newport Pagnell

Lace manufacture (women) . .

617

Tow rester

Yeovil

Lace manufacture (women) . .
Manufacture of gloves (mainly

577

Leek

women) .

Silk industry (predominantly

280

409

Congleton

women) .

Silk industry (predominantly

437

856

Macclesfield

women) .

Silk industry (predominantly

566

790

women) .

593

890

Healthy country
district

Agriculture .

331

333

It shows the death-rate for pulmonary diseases separately for
both sexes between the ages of 15 and 25 computed for every
100,000 population. In the districts selected only women are
employed in industries carried on in enclosed places, while men
work in all other possible lines.

In the silk districts, where more men are employed in the
factory, their mortality is also higher. The death-rate from
consumption, etc., for both sexes, reveals, as the report says, “the
atrocious sanitary circumstances under which much of our silk
industry is conducted ”. And it is in this same silk industry that
the manufacturers, pleading exceptionally favourable and sani¬
tary conditions in their establishments, demanded by way of an
exception, and partially obtained, long working-hours for children
under 13 years of age (Buch I, Kap. VIII, 6, S. 296/286*).

“Probably no industry which has yet been investigated has
afforded a worse picture than that which Dr. Smith gives of

English edition: Ch. X, 6, p. 293 .—Ed.

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

tailoring: — ‘Shops vary much in their sanitary conditions, but
almost universally are overcrowded and ill-ventilated, and in
a high degree unfavourable to health.... Such rooms are neces¬
sarily warm; but when the gas is lit, as during the day-time on
foggy days, and at night during the winter, the heat increases
to 80° and even to upwards of 90°, causing profuse perspiration,
and condensation of vapour upon the panes of glass, so that it
runs down in streams or drops from the roof, and the operatives
are compelled to keep some windows open, at whatever risk to
themselves of taking cold.’ And he gives the following account
of what he found in 16 of the most important West End shops —
‘The largest cubic space in these ill-ventilated rooms allowed
to each operative is 270 feet, and the least 105 feet, and in the
whole averages only 156 feet per man. In one room, with a gallery
running round it, and lighted only from the roof, from 92 to
upwards of 100 men are employed, where a large number of gas¬
lights burn, and where the urinals are in the closest proximity,
the cubic space does not exceed 150 feet per man. In another
room, which can only be called a kennel in a yard, lighted from
the roof, and ventilated by a small skylight opening, five to six
men work in a space of 112 cubic feet per man.’ ... Tailors, in
those atrocious workshops which Dr. Smith describes, work
generally for about 12 or 13 hours a day, and at some times
the work will be continued for 15 or 16 hours” (pp. 25, 26, 28)

Number of persons
employed

Branches of industry
and locality

Death-rate per 100,000
between the ages of

25-35

35-4 5

45-55

958,265

Agriculture, England

and Wales .

743

1,145

22,301 men and |

Tailoring, London . . .

958

2,093

12,377 women J

Type-setters and print-

13,803

ers, London ....

894

2,367

(p. 30). It must be noted, and has in fact been remarked by John
Simon, chief of the Medical Department and author of the report,
that the mortality-rate for tailors, type-setters, and printers of
London between the ages of 25 and 35 was cited lower than the
real figure, because London employers in both lines of business
have a large number of young people (probably up to 30 years of
age) from the country engaged as apprentices and “improvers”,

94 CONVERSION OF SURPLUS-VALUE INTO PROFIT

i.e., men getting additional training. These swell the number
of hands for which the London industrial death-rates are com¬
puted. But they do not proportionally contribute to the number
of deaths in London because their stay there is only temporary.
If they fall ill during this period, they return to their homes in
the country, where their death is registered if they die. This
circumstance affects the earlier ages still more and renders the
London death-rates for these age groups completely valueless as
indexes of the ill-effects of industry on health (p. 30).

The case of the type-setters is similar to that of the tailors. In
addition to lack of ventilation, to poisoned air, etc., there is still
night-work to be mentioned. Their regular working-time is 12 to
13 hours, sometimes 15 to 16. “Great heat and foulness which
begin when the gas-jets are lit. ... It not infrequently happens
that fumes from a foundry, or foul odours from machinery or
sinks, rise from the lower room, and aggravate the evils of the
upper one. The heated air of the lower rooms always tends to
heat the upper by warming the floor, and when the rooms are
low, and the consumption of gas great, this is a serious evil, and
one only surpassed in the case where the steam-boilers are placed
in the lower room, and supply unwished-for heat to the whole
house.... As a general expression, it may be stated that univer¬
sally the ventilation is defective, and quite insufficient to remove
the heat and the products of the combustion of gas in the even¬
ing and during the night, and that in many offices, and partic¬
ularly in those made from dwelling-houses, the condition is
most deplorable. ... And in some offices (especially those of weekly
newspapers) there will be work— work too, in which boys between
12 and 16 years of age take equal part — for almost uninterrupted
periods of two days and a night at a time; — while, in other print¬
ing-offices which lay themselves out for the doing of ‘urgent’
business, Sunday gives no relaxation to the workman, and his
working-days become seven instead of six in every week”
(pp. 26, 28).

The milliners and dress-makers have already attracted our
attention in Book I (Kap. VIII, 3, S. 249/241)* in respect to
overwork. Their workshops are described in our report by Dr.
Ord. Even if better during the day, they become overheated, foul,
and unhealthy during the hours in which gas is burned. Dr. Ord
found in 34 shops of the better sort that the average number of
cubic feet per worker was as follows:

* English edition: Ch. X, 3, pp. 254-55.— Ed.

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

In four cases more than 500, in four other cases from 400 to
500, ... in seven others from 200 to 250, in four others from 150 to
200, and in nine others only from 100 to 150. The largest of these
allowances would but be scanty for continuous work, unless the
space were thoroughly well ventilated; and, except with extraor¬
dinary ventilation, its atmosphere could not be tolerably whole¬
some during gas-light.” And here is Dr. Ord’s remark about
one of the minor workshops which he visited, operated for the
account of a middleman: “One room area in cubical feet, 1,280;
persons present, 14; area to each, in cubical feet, 91.5. The women
here were weary-looking and squalid; their earnings were stated
to be 7s. to 15s. a week, and their tea. ... Hours 8 a. m. to 8 p. m.
The small room into which these 14 persons were crowded was
ill-ventilated. There were two movable windews and a fire-place,
but the latter was blocked up and there was no special ventilation
of any kind ” (p. 27).

The same report states with reference to the overwork of milli¬
ners and dress-makers: “... The overwork of the young women in
fashionable dress-making establishments does not, for more than
about four months of the year, prevail in that monstrous degree
which has on many occasions excited momentary public surprise
and indignation; but for the indoor hands during these months it
will, as a rule, be of full 14 hours a day, and will, when there is
pressure, be, for days together, of 17 or even 18 hours. At other
times of the year the work of the indoor hands ranges probably
from 10 to 14 hours; and uniformly the hours for outdoor hands
are 12 or 13. For mantle-makers, collar-makers, shirt-makers,
and various other classes of needleworkers (including persons
who work at the sewing-machine) the hours spent in the common
workroom are fewer — generally not more than 10 to 12 hours;
but, says Dr. Ord, the regular hours of work are subject to con¬
siderable extension in certain houses at certain times, by the
practice of working extra hours for extra pay, and in other houses
by the practice of taking work away from houses of business,
to be done after hours at home, both practices being, it may be
added, often compulsory” (p. 28). John Simon remarks in a foot¬
note to this page: “Mr. Radcliffe, ... the Honorary Secretary of
the Epidemiological Society, ... happening to have unusual op¬
portunities for questioning the young women employed in first-
class houses of business ... has found that in only one out of
twenty girls examined who called themselves ‘quite well’ could the
state of health be pronounced good; the rest exhibiting in various
degrees evidences of depressed physical power, nervous exhaustion,

CONVERSION OF SURPLUS-VALUE INTO PROFIT

and numerous functional disorders thereupon dependent. He
attributes these conditions in the first place to the length of the
hours of work — the minimum of which he estimates at 12 hours
a day out of the season; and secondarily to ... crowding and bad
ventilation of workrooms, gas-vapours, insufficiency or bad
quality of food, and inattention to domestic comfort. "

The conclusion arrived at by the chief of the English Board of
Health is that “it is practically impossible for workpeople to insist
upon that which in theory is their first sanitary right— the right
that whatever work their employer assembles them to do, shall,
so far as depends upon him, be, at his cost, divested of all need¬
lessly unwholesome circumstances; ... while workpeople are practi¬
cally unable to exact that sanitary justice for themselves,
they also (notwithstanding the presumed intentions of the law)
cannot expect any effectual assistance from the appointed admin¬
istrators of the Nuisances Removal Acts” (p. 29). “Doubtless there
may be some small technical difficulty in defining the exact
line at which employers shall become subject tg regulation.
But ... in principle, the sanitary claim is universal. And in the
interest of myriads of labouring men and women, whose lives
are now needlessly afflicted and shortened by the infinite physical
suffering which their mere employment engenders, I would
venture to express my hope, that universally the sanitary
circumstances of labour may, at least so far, be brought within
appropriate provisions of law, that the effective ventilation
of all indoor workplaces may be ensured, and that in every
naturally insalubrious occupation the specific health-endangering
influence may as far as practicable be reduced” (p. 31).

III. ECONOMY IN THE GENERATION AND TRANSMISSION
OF POWER, AND IN BUILDINGS

In his October 1852 report L. Horner quotes a letter of the
famous engineer James Nasmyth of Patricroft, the inventor of
the steam-hammer, which, among other things, contains the
following:

“...The public are little aware of the vast increase in driving
power which has been obtained by such changes of system and
improvements (of steam-engines) as I allude to. The engine power
of this district (Lancashire) lay under the incubus of timid and
prejudiced traditions for nearly forty years, but now we are
happily emancipated. During the last fifteen years, but more
especially in the course of the last four years (since 1848), some

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

very important changes have taken place in the system of working
condensing steam-engines. ... The result ... has been to realise
a much greater amount of duty or work performed by the identical
engines, and that again at a very considerable reduction of the
expenditure of fuel. ... For a great many years after the intro¬
duction of steam-power into the mills and manufactories of the
above-named districts, the velocity of which it was considered
proper to work condensing steam-engines was about 220 feet per
minute of the piston; that is to say, an engine with a 5-feet stroke
was restricted by ‘rule’ to make 22 revolutions of the crankshaft
per minute. Beyond this speed it was not considered prudent or
desirable to work the engine; and as all the mill gearing ...‘ were
made suitable to this 220 feet per minute speed of piston, this
slow and absurdly restricted velocity ruled the working of such
engines for many years. However, at length, either through
fortunate ignorance of the ‘rule’, or by better reasons on the part
of some bold innovator, a greater speed was tried, and as the
result was highly favourable, others followed the example, by,
as it is termed, ‘letting the engine away’, namely, by so modify¬
ing the proportions of the first motion wheels of the mill gearing
as to permit the engine to run at 300 feet and upwards per minute,
while the mill gearing generally was kept at its former speed....
This ‘letting the engine away’... has led to the almost universal
‘speeding’ of engines, because it was proved that not only was
there available power gained from the identical engines, but also
as the higher velocity of the engine yielded a greater momentum
in the fly-wheel the motion was found to be, much more regular....
We ... obtain more power from a steam-engiBe by simply permit¬
ting its piston to move at a higher velocity (pressure of steam
and vacuum in the condenser remaining the same).... Thus, for
example, suppose any given engine yields 40 horse-power when
its piston is travelling at 200 feet per minute, if by suitable
arrangement or modification we can permit this same engine to
run at such a speed as that its piston will travel through space
at 400 feet per minute (pressure of steam and vacuum, as before
said, remaining the same), we shall then have just double the
power ... and as the pressure by steam and vacuum is the same
in both cases, the strain upon the parts of this engine will be no
greater at 400 than at 200 feet speed of piston, so that the risk
of ‘break- down' does not materially increase with the increase
of speed. All the difference is, that we shall in such case consume
steam at a rate proportional to the speed of piston, or nearly
so; and there will be some small increase in the wear and tear

CONVERSION OF SURPLUS-VALUE INTO PROFIT

of ‘the brasses’ or rubbing-parts, but so slight as to be scarcely
worth notice.... But in order to obtain increase of power from
the same engine by permitting its piston to travel at a higher
velocity it is requisite ... to burn more coal per hour under the
same boiler, or employ boilers of greater evaporating capabilities,
i.e., greater steam-generating powers. This accordingly was done,
and boilers of greater steam-generating or water-evaporating powers
were supplied to the old ‘speeded’ engines, and in many cases
near 100 per cent more work was got out of the identical engines
by means of such changes as above named. About ten years ago
the extraordinary economical production of power as realised by
the engines employed in the mining operations of Cornwall began
to attract attention; and as competition in the spinning trade
forced manufacturers to look to ‘savings’ as the chief source of
profits, the remarkable difference in the consumption of coal per
horse-power per hour, as indicated by the performance of the
Cornish engines, as also the extraordinary economical performance
of Woolf’s double-cylinder engines, began to attract increased
attention to the subject of economy of fuel in this district, and
as the Cornish and double-cylinder engines gave a horse-power
for every 31/* to 4 pounds of coal per hour, while the generality
of cotton-mill engines were consuming 8 or 12 pounds per horse
per hour, so remarkable a difference induced mill-owners and
engine-makers in this district to endeavour to realise, by the
adoption of similar means, such extraordinary economical results
as were proved to be common in Cornwall and France, where
the high price of coal had compelled manufacturers to look more
sharply to such costly departments of their establishments. The
result of this increased attention to economy of fuel has been
most important in many respects. In the first place, many boilers,
the half of whose surface had been in the good old times of high
profits left exposed quite naked to the cold air, began to get
covered with thick blankets of felt, and brick and plaster, and
other modes and means whereby to prevent the escape of that heat
from their exposed surface which had cost so much fuel to main¬
tain. Steam-pipes began to be ‘protected’ in the same manner,
and the outside of the cylinder of the engine felted and cased in
with wood in like manner. Next came the use of ‘high steam’,
namely, instead of having the safety-valve loaded so as to blow
off at 4, 6, or 8 lbs. to the square inch, it was found that by raising
the pressure to 14 or 20 lbs. ... a very decided economy of fuel
resulted; in other words, the work of the mill was performed by
a very notable reduced consumption of coals, ... and those who

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

had the means and the boldness carried the increased pressure
and ‘expansion system’ of working to the full extent, by employ¬
ing properly constructed boilers to supply steam of 30, 40, 50,
60, and 70 lbs. to the square inch; pressures which would have
frightened an engineer of the old school out of his wits. But as
the economic results of so increasing the pressure of steam...
soon appeared in most unmistakable £ s. d. forms, the use of
high-pressure steam-boilers for working condensing engines
became almost general. And those who desired to go to the full
extent ... soon adopted the employment of the Woolf engine
in its full integrity, and most of our mills lately built are worked
by the Woolf engines, namely, those on which there are two
cylinders to each engine, in one of which the high-pressure steam
from the boiler exerts or yields power by its excess of pressure
over that of the atmosphere, which, instead of the said high-
pressure steam being let pass off at the end of each stroke free
into the atmosphere, is caused to pass into a low-pressure cylinder
of about four times the area of the former, and after due expansion
passes to the condenser, the economic result obtained from engines
of this class is such that the consumption of fuel is at the rate
of from 31/* to 4 lbs. of coal per horse per hour; while in the
engines of the old system the consumption used to be on the
average from 12 to 14 lbs. per horse per hour. By an ingenious
arrangement, the Woolf system of double cylinder or combined
low- and high-pressure engine has been introduced extensively to
already existing engines, whereby their performance has been
increased both as to power and economy of fuel. The same result
... has been in use these eight or ten years, by having a high-
pressure engine so connected with a condensing engine as to
enable the waste steam of the former to pass on to and work
the latter. This system is in many cases very convenient.

“It would not be very easy to get an exact return as to the
increase of performance or work done by the identical engines
to which some or all of these improvements have been applied;
I am confident, however, ... that from the same weight of steam-
engine machinery we are now obtaining at least 50 per cent
more duty or work performed on the average, and that in many
cases, the identical steam-engines which in the days of the re¬
stricted speed of 220 feet per minute yielded 50 horse-power, are
now yielding upwards of 100. The very economical results derived
from the employment of high-pressure steam in working condens¬
ing steam-engines, together with the much higher power required
by mill extensions from the same engines, has within the last

100

CONVERSION OF SURPLUS-VALUE INTO PROFIT

three years led to the adoption of tubular boilers, yielding a
much more economical result than those formerly employed in
generating steam for mill engines.” (Reports of Insp. of Fact.,
October 1852, pp. 23-27.)

What applies to power generation also applies to power
transmission and working machinery.

‘‘The rapid strides with which improvement in machinery has
advanced within these few years have enabled manufacturers to
increase production without additional moving power. The more
economical application of labour has been rendered necessary by
the diminished length of the working-day, and in most well-
regulated mills an intelligent mind is always considering in what
manner production can be increased with decreased expenditure.
I have before me a statement, kindly prepared by a very intelli¬
gent gentleman in my district, showing the number of hands
employed, their ages, the machines at work, and the wages paid
from 1840 to the present time. In October 1840, his firm employed
600 hands, of whom 200 were under 13 years of age. In October
last, 350 hands were employed, of whom 60 only were under 13;
the same number of machines, within very few, were at work,
and the same sum in wages was paid at both periods. ”
(Redgrave’s Report in Reports of Insp. of Fact., Oct. 1852,
pp. 58-59.)

These improvements of the machinery do not show their full
effect until they are used in new, appropriately arranged
factories.

“As regards the improvement made in machinery, I may say
in the first place that a great advance has been made in the
construction of mills adapted to receive improved machinery....
In the bottom room I double all my yarn, and upon that single
floor I shall put 29,000 doubling spindles. I effect a saving of
labour in the room and shed of at least 10 per cent, not so much
from any improvement in the principle of doubling yarn, but
from a concentration of machinery under a single management;
and I am enabled to drive the said number of spindles by one
single shaft, a saving in shafting, compared with what other
firms have to use to work the same number of spindles, of 60 per
cent, in some cases 80 per cent. There is a large saving in oil,
and shafting, and in grease.... With superior mill arrangements
and improved machinery, at the lowest estimate I have effected
a saving in labour of 10 per cent, a great saving in power, coal,
oil, tallow, shafting and strapping. ” (Evidence of a cotton spinner,
Reports of Insp. of Fact., Oct. 1863, pp. 109, 110.)

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

101

IV. UTILISATION OF THE EXCRETIONS OF PRODUCTION

The capitalist mode of production extends the utilisation of
the excretions of production and consumption. By the former we
mean the waste of industry and agriculture, ahd by the latter
partly the excretions produced by the natural exchange of matter
in the human body and partly the form of objects that remains
after their consumption. In the chemical industry, for instance,
excretions of production are such by-products as are wasted in
production on a smaller scale; iron filings accumulating in the
manufacture of machinery and returning into the production of
iron as raw material, etc. Excretions of consumption are the
natural waste matter discharged by the human body, remains
of clothing in the form of rags, etc. Excretions of consumption
are of the greatest importance for agriculture. So far as their
utilisation is concerned, there is an enormous waste of them in
the capitalist economy. In London, for instance, they find no
better use for the excretion of four and a half million human
beings than to contaminate the Thames with it at heavy
expense.

Rising prices of raw materials naturally stimulate the
utilisation of waste products.

The general requirements for the re-employment of these
excretions are: large quantities of such waste, such as are available
only in large-scale production; improved machinery whereby
materials, formerly useless in their prevailing form, are put into
a state fit for new production; scientific progress, particularly erf
chemistry, which reveals the useful properties of such waste. It
is true that great savings of this sort are also observed in small-
scale agriculture, as prevails in, say, Lombardy, southern China,
and Japan. But on the whole, the productivity of agriculture
under this system obtains from the prodigal use of human labour-
power, which is withheld from other spheres of production.

The so-called waste plays an important role in almost every
industry. Thus, the Factory Report for December 1863 mentions
as one of the principal reasons why the English and many of
the Irish farmers do not like to grow flax, or do so but rarely,
“the great waste ... which has taken place at the little water
scutch mills ... the waste in cotton is comparatively small, but
in flax very large. The efficiency of water steeping and of good
machine scutching will reduce this disadvantage very consid¬
erably.... Flax, scutched in Ireland in a most shameful way,
and a large percentage actually lost by it, equal to 28 or 30 per

102

CONVERSION OF SURPLUS-VALUE INTO PROFIT

cent” (Reports of Insp. of Fact., Dec. 1863, pp. 139, 142), whereas
all this might be avoided through the use of better machinery.
So much tow fell by the wayside that the factory inspector reports:
“I have been informed with regard to some of the scutch mills
in Ireland, that the waste made at them has often been used by
the scutchers to burn on their fires at home, and yet it is very
valuable” (p. 140 of the above report). We shall speak of cotton
waste later, when we deal with the price fluctuations of raw
materials.

The wool industry was shrewder than the flax manufacturers.
“It was once the common practice to decry the preparation of
waste and woollen rags for re-manufacture, but the prejudice
has entirely subsided as regards the shoddy trade, which has
become an important branch of the woollen trade of Yorkshire,
and doubtless the cotton waste trade will be recognised in the
same manner as supplying an admitted want. Thirty years since,
woollen rags, i.e., pieces of cloth, old clothes, etc., of nothing
but wool, would average about £4 4s. per ton in price: within
the last few years they have become worth £44 per ton, and the
demand for them has so increased that means have been found
for utilising the rags of fabrics of cotton and wool mixed by
destroying the cotton and leaving the wool intact, and now
thousands of operatives are engaged in the manufacture of shoddy,
from which the consumer has greatly benefited in being able to
purchase cloth of a fair and average quality at a very moderate
price.” (Reports of Insp. of Fact., Oct. 1863, p. 107.) By the end
of 1862 the rejuvenated shoddy made up as much as one-third
of the entire consumption of wool in English industry. (Reports
of Insp. of Fact., October 1862, p. 81.) The “big benefit” for
the “consumer” is that his shoddy clothes wear out in just one-
third of the previous time and turn threadbare in one-sixth of
this time.

The English silk industry moved along the same downward
path. The consumption of genuine raw silk decreased somewhat
between 1839 and 1862, while that of silk waste doubled. Improved
machinery helped to manufacture a silk useful for many purposes
from this otherwise rather worthless stuff.

The most striking example of utilising waste is furnished by
the chemical industry. It utilises not only its own waste, for
which it finds new uses, but also that of many other industries.
For instance, it converts the formerly almost useless gas-tar into
aniline dyes, alizarin, and, more recently, even into drugs.

This economy of the excretions of production through their

ECONOMY IN EMPLOYMENT OF CONSTANT CAPITAL

103

re-employment is to be distinguished from economy through the
prevention of waste, that is to say, the reduction of excretions
of production to a minimum, and the immediate utilisation, to
a maximum of all raw and auxiliary materials required in
production.

Reduction of waste depends in part on the quality of the machin¬
ery in use. Economy in oil, soap, etc., depends on how well the
mechanical parts are machined and polished. This refers to the
auxiliary materials. In part, however, and this is most important,
it depends on the quality of the employed machines and tools
whether a larger or smaller portion of the raw material is turned
into waste in the production process. Finally, this depends on
the quality of the raw material itself. This, in turn, depends
partly on the development of the extractive industry and agri¬
culture which produce the raw material (strictly speaking on the
progress of civilisation), and partly on the improvement of
processes through which raw materials pass before they enter
into manufacture.

“Parmentier has demonstrated that the art of grinding grain
has improved very materially in France since a none too distant
epoch, for instance the time of Louis XIV, so that the new mills,
compared to the old, can make up to half as much more bread
from the same amount of grain. The annual consumption of
a Parisian, indeed, has first been estimated at 4 setiers of grain,
then at 3, finally at 2, while nowadays it is only lVs setiers,
or about 342 lbs. per capita.... In the Perche, where I have lived
for a long time, the crude mills of granite and trap rock millstones
have been mostly rebuilt according to the rules of mechanics
which has made such rapid progress in the last 30 years. They
have been provided with good millstones from La Ferte, have
ground the grain twice, the milling sack has been given a circular
motion, and the output of flour from the same amount of grain
has increased one-sixth. The enormous discrepancy between the
daily grain consumption of the Romans and ourselves is there¬
fore easily explained. It is due simply to imperfect methods
of milling and bread-making. This is the way I feel I must explain
a remarkable observation made by Pliny, XVIII, Ch. 20, 2: ...
‘The flour was sold in Rome, depending on its quality, at 40, 48
or 96 as per modius. These prices, so high in proportion to the
contemporaneous grain prices, are due to the imperfect state of
the mills of that period, which were still in their infancy, and
the resultant heavy cost of milling.’” (Dureau de la Malle,
Economic Politique des Romains, Paris, 1840, I, pp. 280-81.)

104

CONVERSION OP SURPLUS-VALUE INTO PROFIT

V. ECONOMY THROUGH INVENTIONS

These savings in the application of fixed capital are, we repeat,
due to the employment of the conditions of labour on a large
scale; in short, are due to the fact that these serve as conditions
of directly social, or socialised labour or direct co-operation
within the process of production. On the one hand, this is the
indispensable requirement for the utilisation of mechanical and
chemical inventions without increasing the price of the commod¬
ity, and this is always the conditio sine qua non. On the other
hand, only production on a large scale permits the savings derived
from co-operative productive consumption. Finally, it is only
the experience of the combined labourer which discovers and
reveals the where and how of saving, the simplest methods of
applying the discoveries, and the ways to overcome the practical
frictions arising from carrying out the theory — in its application
to the production process— etc. ■

Incidentally, a distinction should be made between universal
labour and co-operative labour. Both kinds play their role in the
process of production, both flow one into the other, but both
are also differentiated. Universal labour is all scientific labour,
all discovery and all invention. This labour depends partly on
the co-operation of the living, and partly on the utilisation of
the labours of those who have gone before. Co-operative labour,
on the other hand, is the direct co-operation of individuals.

The foregoing is corroborated by frequent observation, to wit:

1) The great difference in the cost of the first model of a new
machine and that of its reproduction (regarding which, see Ure*
and Babbage**).

2) The far greater cost of operating an establishment based on
a new invention as compared to later establishments arising ex
suis ossibus. This is so very true that the trail-blazers generally
go bankrupt, and only those who later buy the buildings, machin¬
ery, etc., at a cheaper price, make money out of it. It is, there¬
fore, generally the most worthless and miserable sort of money-
capitalists who draw the greatest profit out of all new develop¬
ments of the universal labour of the human spirit and their social
application through combined labour.

* A. Ure, The Philosophy of Manufactures, Second edition, London, 1855.
— Ed.

** Ch. Babbage, On the Economy of Machinery and Manufactures,
London, 1832, pp. 280-81.— Ed.

CHAPTER VI

THE EFFECT OF PRICE FLUCTUATIONS

I. FLUCTUATIONS IN THE PRICE OF RAW MATERIALS,

AND THEIR DIRECT EFFECTS ON THE RATE OF PROFIT

The assumption in this case, as in previous ones, is that no
change takes place in the rate of surplus-value. It is necessary to
analyse the case in its pure form. However, it might be possible for
a specific capital, whose rate of surplus-value remains unchanged,
to employ an increasing or decreasing number of labourers,
in consequence of contraction or expansion caused by such
fluctuations in the price of raw materials as we are to analyse
here. In that case the quantity of surplus-value might vary,
while the rate of surplus-value remains the same. Yet this should
also be disregarded here as a side-issue. If improvements of
machinery and changes in the price of raw materials simulta¬
neously influence either the number of labourers employed by
a definite capital, or the level of wages, one has but to put together
1) the effect caused by the variations of constant capital on the
rate of profit, and 2) the effect caused by variations in wages
on the rate of profit. The result is then obtained of itself.

But in general, it should he noted here, as in the previous
case, that if variations take place, either due to savings in con¬
stant capital, or due to fluctuations in the price of raw materials,
they always affect the rate of profit, even if they leave the wage,
hence the rate and amount of surplus-value, untouched. They

change the magnitude of C in s'-^-, and thus the value of the whole

fraction. It is therefore immaterial, in this case as well — in
contrast to what we found in our analysis of surplus-value — in
which sphere of production these variations occur; whether or
not the production branches affected by them produce necessities
for labourers, or constant capital for the production of such

106

CONVERSION OF SURPLUS-VALUE INTO PROFIT

necessities. The deductions made here are equally valid for
variations occurring in the production of luxury articles, and by
luxury articles we here mean all production that does not serve
the reproduction of labour-power.

The raw materials here include auxiliary materials as well,
such as indigo, coal, gas, etc. Furthermore, so far as machinery
is concerned under this head, its own raw material consists of
iron, wood, leather, etc. Its own price is therefore affected by
fluctuations in the price of raw materials used in its construction.
To the extent that its price is raised through fluctuations, either
in the price of the raw materials of which it consists, or of the
auxiliary materials consumed in its operation, the rate of profit
falls pro tanto. And vice versa.

In the following analysis we shall confine ourselves to fluctua¬
tions in the price of raw materials, not so far as they go to make
up the raw materials of machinery serving as means of labour or
as auxiliary materials applied in its operation, but in so far as
they enter the process in which commodities are produced. There
is just one thing to be noted here: the natural wealth in iron,
coal, wood, etc., which are the principal elements used in the
construction and operation of machinery, presents itself here as
a natural fertility of capital and is a factor determining the rate
of profit irrespective of the high or low level of wages.

Since the rate of profit is-^- , or , it is evident that every¬
thing causing a variation in the magnitude of c, and thereby of C,
must also bring about a variation in the rate of profit, even if
s and v, and their mutual relation, remain unaltered. Now, raw
materials are one of the principal components of constant capital.
Even in industries which consume no actual raw materials,
these enter the picture as auxiliary materials or components of
machinery, etc., and their price fluctuations thus accordingly
influence the rate of profit. Should the price of raw material

fall by an amount=d, then or — becomes -- s-~ r , or — .

J C c+v G— d (c — d) +V

Thus, the rate of profit rises. Conversely, if the price of raw mate¬
rial rises, then or— , becomes rrri, or , and the rate

G c+v C+d (c+d)-(-v’

of profit falls. Other conditions being equal, the rate of profit,
therefore, falls and rises inversely to the price of raw material.
This shows, among other things, how important the low price
of raw material is for industrial countries, even if fluctuations
in the price of raw materials are not accompanied by variations

EFFECT OF PRICE FLUCTUATIONS

107

in the sales sphere of the product, and thus quite aside from
the relation of demand to supply. It follows furthermore that
foreign trade influences the rate of profit, regardless of its in¬
fluence on wages through the cheapening of the necessities of
life. The point is that it affects the prices of raw or auxiliary
materials consumed in industry and agriculture. It is due to
an as yet imperfect understanding of the nature of the rate of
profit and of its specific difference from the rate of surplus-value
that, on the one hand, economists (like Torrens*) wrongly explain
the marked influence of the prices of raw material on the rate of
profit, which they note through practical experience, and that,
on the other, economists like Ricardo,** who cling to general
principles, do not recognise the influence of, say, world trade on
the rate of profit.

This makes clear the great importance to industry of the elimi¬
nation or reduction of customs duties on raw materials. The
rational development of the protective tariff system made the
utmost reduction of import duties on raw materials one of
its cardinal principles. This, and the abolition of the duty on
corn, was the main object of the English free-traders, who were
primarily concerned with having the duty on cotton lifted as
well.

The use of flour in the cotton industry may serve as an illustra¬
tion of the importance of a price reduction for an article which
is not strictly a raw material but an auxiliary and at the same
time one of the principal elements of nourishment. As far back
as 1837, R. H. Greg13 calculated that the 100,000 power-looms
and 250,000 hand-looms then operating in the cotton-mills of
Great Britain annually consumed 41 million lbs. of flour to
smooth the warp. He added a third of this quantity for bleaching
and other processes, and estimated the total annual value of
the flour so consumed at £342,000 for the preceding ten years.
A comparison with flour prices on the continent showed that the
higher flour price forced upon manufacturers by corn tariffs
alone amounted to £170,000 per year. Greg estimated the sum
at a minimum of £200,000 for 1837 and cited a firm for which
the flour price difference amounted to £1,000 annually. As a

* R. Torrens, An Essay on the Production of Wealth, London, 1821,
p. 28 et seq. — Ed.

** D. Ricardo, On the Principles of Political Economy, and Taxation,
Third edition, London, 1821, pp. 131-38. — Ed.

13 The Factory Question and the Ten Hours' Bill by R. H. Greg, London,
1837, p. 115.

108

CONVERSION OF SURPLUS-VALUE INTO PROFIT

result, “great manufacturers, thoughtful, calculating men of
business, have said that ten hours’ labour would be quite suffi¬
cient, if the Com Laws were repealed”. (Reports of Insp. of
Fact., Oct. 1848, p. 98.) The Corn Laws were repealed. So were
the duties on cotton and other raw materials. But no sooner
had this been accomplished than the opposition of the manu¬
facturers to the Ten Hours' Bill became more violent than ever.
And when the ten-hour factory day nevertheless became a law
soon after, the first result was a general attempt to reduce wages.

The value of raw and auxiliary materials passes entirely and
all at one time into the value of the product in the manufacture
of which they are consumed, while the elemepts of fixed capital
transfer their value to the product only gradually in proportion
to their wear and tear. It follows that the price of the product
is influenced far more by the price of raw materials than by that
of fixed capital, although the rate of profit is determined by the
total value of the capital applied no matter how much of it
is consumed in the making of the product. But it is evident —
although we merely mention it in passing, since we here still
assume that commodities are sold at their values, so that price
fluctuations caused by competition do not as yet concern us — that
the expansion or contraction of the market depends on the price
of the individual commodity and is inversely proportional to
the rise or fall of this price. It actually develops, therefore, that
the price of the product does not rise in proportion to that of
the raw material, and that it does not fall in proportion to that
of raw material. Consequently, the rate of profit falls lower
in one instance, and rises higher in the other than would have
been the case if products were sold at their value.

Further, the quantity and value of the employed machinery
grows with the development of labour productivity but not in
the same proportion as this productivity, i.e., not in the propor¬
tion in which this machinery increases its output. In those
branches of industry, therefore, which do consume raw materials,
i.e., in which the subject of labour is itself a product of previous
labour, the growing productivity of labour is expressed precise¬
ly in the proportion in which a larger quantity of raw material
absorbs a definite quantity of labour, hence in the increasing
amount of raw material converted in, say, one hour into products,
or processed into commodities. The value of raw material,
therefore, forms an ever-growing component of the value of the
commodity-product in proportion to the development of the
productivity of labour, not only because it passes wholly into

EFFECT OF PRICE FLUCTUATIONS

109

this latter value, but also because in every aliquot part of the
aggregate product the portion representing depreciation of machin¬
ery and the portion formed by the newly added labour — both
continually decrease. Owing to this falling tendency, the other
portion of the value representing raw material increases propor¬
tionally, unless this increase is counterbalanced by a proportionate
decrease in the value of the raw material arising from the growing
productivity of the labour employed in its own production.

Further, raw and auxiliary materials, just like wages, form
parts of the circulating capital and must, therefore, be continually
replaced in their entirety through the sale of the product, while
only the depreciation is to be renewed in the case of machinery,
and first of all in the form of a reserve fund. It is, moreover, in
no way essential for each individual sale to contribute its share
to this reserve fund, so long as the total annual sales contribute
their annual share. This shows again how a rise in the price of
raw material can curtail or arrest the entire process of repro¬
duction if the price realised by the sale of the commodities should
not suffice to replace all the elements of these commodities. Or,
it may make it impossible to continue the process on the scale
required by its technical basis, so that only a part of the machinery
will remain in operation, or all the machinery will work for only
a fraction of the usual time.

Finally, the expense incurred through waste varies in direct
proportion to the price fluctuations of the raw material, rising
when they rise and falling when they fall. But there is a limit
here as well. The Factory Report for April 1850 maintained:
“One source of considerable loss arising from an advance in the
price of the raw material would hardly occur to any one but
a practical spinner, viz., that from waste. I am informed that
when cotton advances, the cost to the spinner, of the lower
qualities especially, is increased in a ratio beyond the advance
actually paid, because the waste made in spinning coarse yarns
is fully 15 per cent; and this rate, while it causes a loss of 1/,d.
per lb. on cotton at 31 /ad. per lb., brings up the loss to Id. per lb.
when cotton advances to 7d.” (Reports of Insp. of Fact., April
1850, p. 17.) But when, as a result of the American Civil War,
the price of cotton rose to a level unequalled in almost 100 years,
the report read differently: “The price now given for waste,
and its re-introduction in the factory in the shape of cotton
waste, go some way to compensate for the difference in the loss
by waste, between Surat cotton and American cotton, about
121/* per cent.

110

CONVERSION OF SURPLUS-VALUE INTO PROFIT

“The waste in working Surat cotton being 25 per cent, the cost
of the cotton to the spinner is enhanced one-fourth before he has
manufactured it. The loss by waste used not to be of much moment
when American cotton was 5d. or 6d. per lb., for it did not
exceed 3/« d. per lb., but it is now of great importance when
upon every lb. of cotton which costs 2s. there is a loss by waste
equal to 6d.”14 (Reports of Insp. of Fact., Oct. 1863, p. 106.)

II. APPRECIATION, DEPRECIATION, RELEASE
AND TIE-UP OF CAPITAL

The phenomena analysed in this chapter require for their full
development the credit system and competition on the world-
market, the latter being the basis and the vital element of capital¬
ist production. These more definite forms of capitalist production
can only be comprehensively presented, however, after the general
nature of capital is understood. Furthermore, they do not come
within the scope of this work and belong to its eventual con¬
tinuation. Nevertheless the phenomena listed in the above title
may be discussed in a general way at this stage. They are interre¬
lated, first with one another and, secondly, also with the rate
and amount of profit. They are to be briefly discussed here if
only because they create the impression that not only the rate,
but also the amount of profit— which is actually identical with
the amount of surplus-value— could increase or decrease independ¬
ently of the movements of the quantity or rate of surplus-value.

Are we to consider release and tie-up of capital, on the one
hand, and its appreciation and depreciation, on the other, as
different phenomena?

The question is what we mean by release and tie-up of capital?
Appreciation and depreciation are self-explanatory. All they
mean is that a given capital increases or decreases in value as
a result of certain general economic conditions, for we are not
discussing the particular fate of an individual capital. All they
mean, therefore, is that the value of a capital invested in produc-

14 The report errs in the final sentence. Instead of 6d. it should be 3d.
for loss through waste. This loss amounts to 25% in the case of Surat, and
only 12l/„ to 15% in the case of American cotton, and this latter is meant,
the same percentage having been correctly calculated for the price of 5 to
6d. It is true, however, that also in the case of American cotton brought
to Europe during the latter years of the Civil War the proportion of waste
often rose considerably higher than before. — F. E.

EFFECT OF PRICE FLUCTUATIONS

111

tion rises or falls, irrespective of its self-expansion by virtue of
the surplus-labour employed by it.

By tie-up of capital we mean that certain portions of the total
value of the product must be reconverted into elements of constant
and variable capital if production is to proceed on the same scale.
By release of capital we mean that a portion of the total value
of the product which had to be reconverted into constant or
variable capital up to a certain time, becomes disposable and
superfluous, should production continue on the previous scale.
This release or tie-up of capital is different from the release or
tie-up of revenue. If the annual surplus-value of an individual
capital C is, let us say, equal to x, then a reduction in the price
of commodities consumed by the capitalists would make x — a
sufficient to procure the same enjoyments, etc., as before.
A portion of the revenue=a is released, therefore, and may serve
either to increase consumption or to be reconverted into capital
(for the purpose of accumulation). Conversely, if x+a is needed
to continue to live as before, then this standard of living must
either be reduced or a portion of the previously accumulated
income=a, expended as revenue.

Appreciation and depreciation may affect either constant or
variable capital, or both, and in the case of constant capital it
may, in turn, affect either the fixed, or the circulating portion,
or both.

Under constant capital we must consider the raw and
auxiliary materials, including semi-finished products, all of which
we here include under the term of raw materials, machinery,
and other fixed capital.

In the preceding analysis we referred especially to variations
in the price, or the value, of raw materials in respect to their
influence on the rate of profit, and determined the general law
that with other conditions being equal, the rate of profit is
inversely proportional to the value of the raw materials. This is
absolutely true for capital newly invested in a business enterprise,
in which the investment, i.e., the conversion of money into
productive capital, is only just taking place.

But aside from this capital, which is being newly invested, a
large portion of the already functioning capital is in the sphere
of circulation, while another portion is in the sphere of production.
One portion is in the market in the shape of commodities waiting
to be converted into money; another is on hand as money, in
whatever form, waiting to be reconverted into elements of
production; finally, a third portion is in the sphere of production,

112

CONVERSION OF SURPLUS-VALUE INTO PROFIT

partly in its original form of means of production such as raw
and auxiliary materials, semi-fin}shed products purchased in
the market, machinery and other fixed capital, and partly in
the form of products which are in the process of manufacture.
The effect of appreciation or depreciation depends here to a
great extent on the relative proportion of these component parts.
Let us, for the sake of simplicity, leave aside all fixed capital
and consider only that portion of constant capital which consists
of raw and auxiliary materials, and semi-finished products, and
both finished commodities in the market and commodities still
in the process of production.

If the price of raw material, for instance of cotton, rises, then
the price of cotton goods— both semi-finished goods like yarn and
finished goods like cotton fabrics — manufactured while cotton was
cheaper, rises also. So does the value of the unprocessed cotton
held in stock, and of the cotton in the process of manufacture.
The latter because it comes to represent more labour-time in
retrospect and thus adds more than its original value to the
product which it enters, and more than the capitalist paid for it.

Hence, if the price of raw materials rises, and there is a consid¬
erable quantity of available finished commodities in the market,
no matter what the stage of their manufacture, the value of these
commodities rises, thereby enhancing the value of the existing
capital. The same is true for the supply of raw materials, etc., in
the hands of the producer. This appreciation of value may com¬
pensate, or more than compensate, the individual capitalist,
or even an entire separate sphere of capitalist production, for
the drop in the rate of profit attending a rise in the price of raw
materials. Without entering into the detailed effects of compe¬
tition, we might state for the sake of thoroughness that 1) if
available supplies of raw material are considerable, they tend
to counteract the price increase which occurred at the place of
their origin; 2) if the semi-finished and finished goods press
very heavily upon the market, their price is thereby prevented
from rising proportionately to the price of their raw materials.

The reverse takes place when the price of raw material falls.
Other circumstances remaining the same, this increases the rate
of profit. The commodities in the market, the articles in the
process of production, and the available supplies of raw material,
depreciate in value and thereby counteract the attendant rise in
the rate of profit.

The effect of price variations for raw materials is the more
pronounced, the smaller the supplies available in the sphere of

EFFECT OF PRICE FLUCTUATIONS

113

production and in the market at, say, the close of a business
year, i.e., after the harvest in agriculture, when great quantities
of raw materials are delivered anew.

We proceed in this entire analysis from the assumption that
the rise or fall in prices expresses actual fluctuations in value.
But since we are here concerned with the effects such price varia¬
tions have on the rate of profit, it matters little what is at the
bottom of them. The present statements apply equally if prices
rise or fall under the influence of the credit system, competition,
etc., and not on account of fluctuations in value.

Since the rate of profit equals the ratio of the excess over the
value of the product to the value of the total capital advanced,
a rise caused in the rate of profit by a depreciation of the advanced
capital would be associated with a loss in the value of capital.
Similarly, a drop caused in the rate of profit by an appreciation
of the advanced capital might possibly be associated with a
gain.

As for the other portion of constant capital, such as machinery
and fixed capital in general, the appreciation of value taking place
in it with respect mainly to buildings, real estate, etc., cannot be
discussed without the theory of ground-rent, and does not there¬
fore belong in this chapter. But of a general importance to the
question of depreciation are:

The continual improvements which lower the use-value, and
therefore the value, of existing machinery, factory buildings, etc.
This process has a particularly dire effect during the first period
of newly introduced machinery, before it attains a certaih stage
of maturity, when it continually becomes antiquated before it
has time to reproduce its own value. This is one of the reasons
for the flagrant prolongation of the working-time usual in such
periods, for alternating day and night-shifts, so that the value
of the machinery may be reproduced in a shorter time without
having to place the figures for wear and tear too high. If, on the
other hand, the short period in which the machinery is effective
(its short life vis-a-vis the anticipated improvements) is not
compensated in this manner, it gives up so much of its value to
the product through moral depreciation that it cannot compete
even with hand-labour.16

16 For examples see Babbage [On the Economy of Machinery and Manu¬
factures, London, 1832, pp. 280-81. — Ed.], among others. The usual expe¬
dient — a reduction of wages — is also employed in this instance, so that this
continual depreciation acts quite contrary to the dreams of Mr. Carey’s
“harmonious brain”.

114

CONVERSION OF SI'RPLUS-VALUE INTO PROFIT

After machinery, equipment of buildings, and fixed capital in
general, attain a certain maturity, so that they remain unaltered
for some length of time at least in their basic construction, there
arises a similar depreciation due to improvements in the methods
of reproducing this fixed capital. The value of the machinery,
etc., falls in this case not so much because the machinery is rapidly
crowded out and depreciated to a certain degree by new and more
productive machinery, etc., but because it can be reproduced
more cheaply. This is one of the reasons why large enterprises
frequently do not flourish until they pass into other hands, i.e.,
after their first proprietors have been bankrupted, and their
successors, who buy them cheaply, therefore begin from the outset
with a smaller outlay of capital.

It leaps to the eye, particularly in the case of agriculture, that
the causes which raise or lower the price of a product, also raise
or lower the value of capital, since the latter consists to a large
degree of this product, whether as grain, cattle, etc. (Ricardo*).

There is still variable capital to be considered.

Inasmuch as the value of labour-power rises because there is a
rise in the value of the means of subsistence required for its repro¬
duction, or falls because there is a reduction in their value — and
the appreciation and depreciation of variable capital are really
nothing more than expressions of these two cases — a drop in
surplus-value corresponds to such appreciation and an increase
in surplus-value to such depreciation, provided the length of the
working-day remains the same. But other circumstances — the
release and tie-up of capital — may also be associated with such
cases, and since we have not analysed them so far, we shall briefly
mention them now.

If wages fall in consequence of a depreciation in the value of
labour-power (which may even be attended by a rise in the real
price of labour), a portion of the capital hitherto invested in
wages is released. Variable capital is set free. In the case of new
investments of capital, this has simply the effect of its operating
with a higher rate of surplus-value. It takes less money than
before to set in motion the same amount of labour, and in this
way the unpaid portion of labour increases at the expense of
the paid portion. But in the case of already invested capital,

* D. Ricardo, On the Principles of Political Economy, and Taxation,
Third edition, London, 1821, Chapter II.— Ed.

EFFECT OF PRICE FLUCTUATIONS

115

not only does the rate of surplus-value rise but a portion of the
capital previously invested in wages is also released. Until this
time it was tied up and formed a regular portion which had to
be deducted from the proceeds for the product and advanced for
wages, acting as variable capital if the business were to continue
on its former scale. Now this portion is set free and may be used
as a new investment, be it to extend the same business or to
operate in some other sphere of production.

Let us assume, for instance, that £500 per week were required
at first to employ 500 labourers, and that now only £400 are
needed for the same purpose. If the quantity of value produced
in either case=£l,000, the amount of weekly surplus-value in

the first case=£500and the rate of surplus-value-|^-=100%. But

after the wage reduction the quantity of surplus-value £1,000 —

noo

— £400=£600, and its rate =150%. And this increase in the

4UU

rate of surplus-value is the only effect for one who starts a new
enterprise in this sphere of production with a variable capital
of £400 and a corresponding constant capital. But when this
takes place in a business already in operation, the depreciation
of the variable capital does not only increase the quantity of
surplus-value from £500 to £600, and the rate of surplus-value
from 100 to 150%, but releases £100 of the variable capital for
the further exploitation of labour. Hence, the same amount of
labour is exploited to greater advantage, and, what is more,
the release of £100 makes it possible to exploit more labourers
than before at the higher rate with the same variable capital
of £500.

Now the reverse situation. Suppose, with 500 employed labour¬
ers, the original proportion in which the product is divided =
=400v + 600s = 1,000, making the rate of surplus-value = 150%.
In that case, the labourer receives £4/6, or 16 shillings per week.
Should 500 labourers cost £500 per week, due to an appreciation
of variable capital, each one of them will receive a weekly wage =
= £1, and £400 can employ only 400 labourers. If the same
number of labourers as before is put to work, therefore, we have
500y-(-500s= 1,000. The rate of surplus-value would fall from 150

to 100%, which is one-third. In the case of new capital the only
effect would be this lower rate of surplus-value. Other conditions
being equal, the rate of profit would also have fallen accordingly,
although not in the same proportion. For instance, if c=2,000,
we have in the one case 2,000o-|-400v+600s=3,000. The rate of

116

CONVERSION OP SURPLUS-VALUE INTO PROFIT

600

surplus-value = 150%, the rate of profit= 2TT[T= 25%. In the
second case, 2,000c-|-500v+500s=3,000. The rate of surplus-

value=100%, the rate of pro fit = =20%. In the case of

already invested capital, however, there would be a dual effect.
Only 400 labourers could be employed with a £400 variable
capital, and that at a rate of surplus-value of 100%. They would
therefore produce an aggregate surplus-value of only £400.
Furthermore, since a constant capital of £2,000 requires 500
labourers for its operation, 400 labourers can put into motion
only a constant capital of £1,600. For production to continue
on the same scale, so that one-fifth of the machinery does not
stand idle, £100 must be added to the variable capital in order
to employ 500 labourers as before. And this can be accomplished
only by tying up hitherto disposable capital, so that part of the
accumulation intended to extend production serves merely to stop
a gap, or a portion reserved for revenue is added to the old capital.
Then a variable Capital increased by £100 produces £100 less
surplus-value. More capital is required to employ the same
number of labourers, and at the same time the surplus-value
produced by each labourer is reduced.

The advantages resulting from a release and the disadvantages
resulting from a tie-up of variable capital both exist only for
capital already engaged and reproducing itself under certain given
conditions. For newly invested capital the advantages on the one
hand, and the disadvantages on the other, are confined to an
increase or drop in the rate of surplus-value, and to a correspond¬
ing, if in no way proportionate, change in the rate of profit.

The release and tie-up of variable capital, just analysed, is the
result of a depreciation or appreciation of the elements of variable
capital, that is, of the cost of reproducing labour-power.

But variable capital could also be released if, with the wage
rate unchanged, fewer labourers were required due to the devel¬
opment of labour productivity to set in motion the same amount
of constant capital. In like manner, there may reversely be a
tie-up of additional variable capital if more labourers are required
for the same quantity of constant capital due to a drop in
productivity. If, on the other hand, a portion of capital formerly
employed as variable capital is employed in the form of constant
capital, so that merely a different distribution exists between

EFFECT OF PRICE FLUCTUATIONS

117

the components of the same capital, this has an influence on both
the rate of surplus-value and the rate of profit, but does not
belong under the heading of tie-up and release of capital, which
is here being discussed.

We have already seen that constant capital may also be tied up
or released by the appreciation or depreciation of its component
elements. Aside from this, it can be tied up only if the productive
power of labour increases (provided a portion of the variable
is not converted into constant capital), so that the same amount
of labour creates a greater product and therefore sets in motion
a larger constant capital. The same may occur under certain
circumstances if productivity decreases, for instance in agricul¬
ture, so that the same quantity of labour requires more means
of production, such as seeds or manure, drainage, etc., in order
to produce the same output. Constant capital may be released
without depreciation if improvements, utilisation of the forces
of Nature, etc., enable a constant capital of smaller value to
technically perform the same services as were formerly performed
by a constant capital of greater value.

We have seen in Book II* that once commodities have been
converted into money, or sold, a certain portion of this money
must be reconverted into the material elements of constant
capital, and in the proportions required by the technical nature
of the particular sphere of production. In this respect, the most
important element in all branches— aside from wages, i.e.,
variable capital— is raw material, including auxiliary material,
which is particularly important in such lines of production as
do not involve raw materials in the strict sense of the term, for
instance in mining and the extractive industries in general.
That portion of the price which is to make good the wear and
tear of machinery enters the accounts chiefly nominally so long
as the machinery is at all in an operating condition. It does not
greatly matter whether it is paid for and replaced by money
one day or the next, or at any other stage of the period of turn¬
over of the capital. It is quite different in the case of the raw
material. If the price of raw material rises, it may be impossible
to make it good fully out of the price of the commodities after
wages are deducted. Violent price fluctuations therefore cause
interruptions, great collisions, even catastrophes, in the process
of reproduction. It is especially agricultural produce proper,
i.e., raw materials taken from organic nature, which — leaving

* English edition: Vol. II, Part III. — Ed.

'1—2494

Hg CONVERSION OF SURPLUS-VALUE INTO PROFIT

aside the credit system for the present — is subject to such fluctua¬
tions of value in consequence of changing yields, etc. Due to
uncontrollable natural conditions, favourable* or unfavourable
seasons, etc., the same quantity of labour may be represented
in very different quantities of use-values, and a definite quantity
of these use-values may therefore have very different prices. If
the value x is represented by 100 lbs. of the commodity a, then

the price of one lb. of a=-^-; if it is represented by 1,000 lbs.

of a, the price of one lb. of a = - ^ , etc. This is therefore one

of the elements of these fluctuations in the price of raw materials.
A second element, mentioned at this point only for the sake of
completeness — since competition and the credit system are still
outside the scope of our analysis — is this: It is in the nature
of things that vegetable and animal substances whose growth
and production are subject to certain organic laws and bound
up with definite natural time periods, cannot be suddenly
augmented in the same degree as, for instance, machines and other
fixed capital, or coal, ore, etc., whose reproduction can, provided
the natural conditions do not change, be rapidly accomplished
in an industrially developed country. It is therefore quite possible,
and under a developed system of capitalist production even ine¬
vitable, that the production and increase of the portion of constant
capital consisting of fixed capital, machinery, etc., should con¬
siderably outstrip the portion consisting of organic raw materials,
so that demand for the latter grows more rapidly than their
supply, causing their price to rise. Rising prices actually cause

1) these raw materials to be shipped from greater distances,
since the mounting prices suffice to cover greater freight rates;

2) an increase in their production, which circumstance, however,
will probably not, for natural reasons, multiply the quantity
of products until the following year; 3) the use of various pre¬
viously unused substitutes and greater utilisation of waste. When
this rise of prices begins to exert a marked influence on
production and supply it indicates in most cases that the turning-
point has been reached at which demand drops on account of
the protracted rise in the price of the raw material and of all
commodities of which it is an element, causing a reaction in the
price of raw material. Aside from the convulsions which this
causes in various forms through depreciation of capital, there are
also other circumstances, which we shall mention shortly.

But so much is already evident from the foregoing: The greater

EFFECT OF PRICE FLUCTUATIONS

119

the development of capitalist production, and, consequently, the
greater the means of suddenly and permanently increasing that
portion of constant capital consisting of machinery, etc., and the
more rapid the accumulation (particularly in times of pros¬
perity), so much greater the relative over-production of machinery
and other fixed capital, so much more frequent the relative under¬
production of vegetable and animal raw materials, and so much
more pronounced the previously described rise of their prices
and the attendant reaction. And so much more frequent are the
convulsions caused as they are by the violent price fluctuations of
one of the main elements in the process of reproduction.

If, however, a collapse of these high prices occurs because
their rise caused a drop in demand on the one hand, and, on the
other, an expansion of production in one place and in another
importation from remote and previously less resorted to, or
entirely ignored, production areas, and, in both cases, a supply of
raw materials exceeding the demand — particularly at the old
high prices — then the result may be considered from different
points of view. The sudden collapse of the price of raw materials
checks their reproduction, and the monopoly of the original
producing countries, which enjoy the most favourable conditions
of production, is thereby restored — possibly with certain
limitations, but restored nevertheless. True, due to the impetus it
has had, reproduction of raw material proceeds on an extended
scale, especially in those countries which more or less possess
a monopoly of this production. But the basis on which production
carries on after the extension of machinery, etc., and which,
after some fluctuations, is to serve as the new normal basis, the
new point of departure, is very much extended by the develop¬
ments in the preceding cycle of turnover. In the meantime, the
barely increased reproduction again experiences considerable
impediments in some of the secondary sources of supply. For
instance, it is easily demonstrated on the basis of the export
tables that in the last thirty years (up to 1865) the production
of cotton in India increases whenever there has been a drop in
American production, and subsequently it drops again more or
less permanently. During the period in which raw materials
become dear, industrial capitalists join hands and form associa¬
tions to regulate production. They did so after the rise of cotton
prices in 1848 in Manchester, for example, and similarly in the
case of flax production in Ireland. But as soon as the immediate
impulse is over and the general principle of competition to “buy
in the cheapest market” (instead of stimulating production

120

CONVERSION OF SURPLUS-VAL,UE INTO PROFIT

in the countries of origin, as the associations attempt to do,
without regard to the immediate price at which ihese may happen
at that time to be able to supply their product)— as soon as the
principle of competition again reigns supreme, the regulation of
the supply is left once again to “prices. ” All thought of a common,
all-embracing and far-sighted control of the production of raw
materials gives way once more to the faith that demand and
supply will mutually regulate one another. And it must be
admitted that such control is on the whole irreconcilable with
the laws of capitalist production, and remains for ever a pious
wish, or is limited to exceptional co-operation in times of great
stress and confusion.1* The superstition of the capitalists in this
respect is so deep that in their reports even factory inspectors
again and again throw up their hands in astonishment. The
alternation of good and bad years naturally also provides for
cheaper raw materials. Aside from the direct effect this has on
raising the demand, there is also the added stimulus of the pre¬
viously mentioned influence on the rate of profit. The aforesaid
process of production of raw materials being gradually overtaken
by the production of machinery, etc., is then repeated on a larger
scale. An actual improvement of raw materials satisfying not
only the desired quantity, but also the quality desired, such as
cotton from India of American quality, would require a prolonged,
regularly growing and steady European demand (regardless of the
economic conditions under which the Indian producer labours in
his country). As it is, however, the sphere of production of raw
materials is, by fits, first suddenly enlarged, and then again
violently curtailed. All this, and the spirit of capitalist production

16 Since the above was written (1865), competition on the world-market
has been considerably intensified by the rapid development of industry in
all civilised countries, especially in America and Germany. The fact that
the rapidly and enormously expanding productive forces today outgrow
the control of the laws of the capitalist mode of commodity exchange,
within which they are supposed to operate, impresses itself more and more
even on the minds of the capitalists. Thi3 is disclosed especially by two symp¬
toms. First, by the new and general mania for a protective tariff, which
differs from the old protectionism in that now articles fit for export are those
best protected. And secondly, by the trusts of manufacturers of whole spheres
of production which regulate production, and thus prices and profits. It
goes without saying that these experiments are practicable only so long as
the economic climate is relatively favourable. The first storm must upset
them and prove that, although production assuredly needs regulation, it
is certainly not the capitalist class which is fitted for that task. Meanwhile,
the trusts have no other mission but to see to it that the little fish are swal¬
lowed by the big fish still more rapidly than before. — F.E.

EFFECT OF PRICE FLUCTUATIONS

121

in general, may be very well studied in the cotton shortage of
1861-65, further characterised as it was by the fact that a raw
material, one of the principal elements of reproduction, was for
a time entirely unavailable. To be sure, the price may also rise
in the event of an abundant supply, provided the conditions for
this abundance are more knotty. Or, there may be an actual
shortage of raw material. It was this last situation which
originally prevailed in the cotton crisis.

The closer we approach our own time in the history of produc¬
tion, the more regularly do we find, especially in the essential
lines of industry, the ever-recurring alternation between relative
appreciation and the subsequent resulting depreciation of raw
materials obtained from organic nature. What we have just
analysed will be illustrated by the following examples taken
from reports of factory inspectors.

The moral of history, also to be deduced from other observa¬
tions concerning agriculture, is that the capitalist system works
against a rational agriculture, or that a rational agriculture is
incompatible with the capitalist system (although the latter
promotes technical improvements in agriculture), and needs either
the hand of the small farmer living by his own labour or the
control of associated producers.

Herewith follow the illustrations referred to above, taken from
the English Factory Reports.

“The state of trade is better; but the cycle of good and bad
times diminishes as machinery increases, and the changes from
the one to the other happen oftener, as the demand for raw mate¬
rials increases with it.... At present, confidence is not only restored
after the panic of 1857, but the panic itself seems to be almost
forgotten. Whether this improvement will continue or not depends
greatly upon the price of raw materials. There appear to me
evidences already, that in some instances the maximum has
been reached, beyond which their manufacture becomes gradually
less and less profitable, till it ceases to be so altogether. If we
take, for instance, the lucrative years in the worsted trade of
1849 and 1850, we see that the price of English combing wool
stood at Is. Id., and of Australian at between Is. 2d. and Is. 5d.
per lb., and that on the average of the ten years from 1841 to
1850, both inclusive, the average price of English wool never
exceeded Is. 2d. and of Australian wool Is. 5d. per lb. But that
in the commencement of the disastrous year of 1857, the price

122 CONVERSION OP SURPLUS-VALUE INTO PROFIT

of Australian wool began with Is. lid., falling to Is. 6d. in
December, when the panic was at its height, but has gradually
risen again to Is. 9d. through 1858, at which it now stands;
whilst that of English wool, commencing with Is. 8d., and rising
in April and September 1857 to Is. 9d., falling in January 1858
to Is. 2d., has since risen to Is. 5d., which is 3d. per lb. higher
than the average of the ten years to which I have referred....
This shows, I think, one of three things — either that the bank¬
ruptcies which similar prices occasioned in 1857 are forgotten;
or that there is barely the wool grown which the existing spindles
are capable of consuming; or else, that the prices of manufactured
articles are about to be permanently higher.... And as in past
experience I have seen spindles and looms multiply Jioth in num¬
bers and speed in an incredibly short space of time, and our
exports of wool to France increase in an almost equal ratio, and
as both at home and abroad the age of sheep seems to be getting
less and less, owing to increasing populations and to what the
agriculturalists call ‘a quick return in stock’, so I have often
felt anxious for persons whom, without this knowledge, I have
seen embarking skill and capital in undertakings, wholly reliant
for their success on a product which can only be increased accord¬
ing to organic laws. ... The same state of supply and demand of
all raw materials ... seems to account for many of the fluctuations
in the cotton trade during past periods, as well as for the condi¬
tion of the English wool market in the autumn of 1857, with its
overwhelming consequences.”17 (R. Baker in Reports of Insp. of
Fact., Oct. 1858, pp. 56-61.)

The halcyon days of the West-Riding worsted industry, of
Yorkshire, were 1849-50. This industry employed 29,246 persons
in 1838; 37,000 persons in 1843; 48,097 in 1845; and 74,891 in
1850. The same district had 2,768 mechanical looms in 1838;
11,458 in 1841; 16,870 in 1843; 19,121 in 1845 and 29,539 in 1850.
(Reports of Insp. of Fact., 1850, p. 60.) This prosperity of the
carded wool industry excited certain forebodings as early as
October 1850. In his report for April 1851, Sub-Inspector Baker
said in regard to Leeds and Bradford: “The state of trade is, and
has been for some time, very unsatisfactory. The worsted spinners
are fast losing the profits of 1850, and, in the majority of cases,

17 It goes without saying that we do not, like Mr. Baker, explain the
wool crisis of 1857 on the basis of the disproportion between the prices of
raw material and product. This disproportion was itself but a symptom,
and the crisis was a general one. — F.E.

EFFECT OF PRICE FLUCTUATIONS

123

the manufacturers are not doing much good. I believe, at this
moment, there is more woollen machinery standing than I have
almost ever known at one time, and the flax spinners are also
turning off hands and stopping frames. The cycles of trade, in
fact, in the textile fabrics, are now extremely uncertain, and
[ think we shall shortly find to be true ... that there is no com¬
parison made between the producing power of the spindles, the
quantity of raw material, and the growth of the population”
(p. 52).

The same is true of the cotton industry. In the cited report
for October 1858, we read: “Since the hours of labour in factories
have been fixed, the amounts of consumption, produce, and
wages in all textile fabrics have been reduced to a rule of three. ...
I quote from a recent lecture delivered by ... the present Mayor
of Blackburn, Mr. Baynes, on the cotton trade, who by such
means has reduced the cotton statistics of his own neighbourhood
to the closest approximation: —

“‘Each real and mechanical horse-power will drive 450 self¬
acting mule spindles with preparation, or 200 throstle spindles,
or 15 looms for 40 inches cloth, with winding, warping, and
sizing. Each horse-power in spinning will give employment to
2 1/2 operatives, but in weaving to 10 persons, at wages averaging
full 10s. 6d. a week to each person. ... The average counts of yarn
spun and woven are from 30s. to 32s. twist, and 34s. to 36s. weft
yarns; and taking the spinning production at 13 ounces per spin¬
dle per week, will give 824,700 lbs. yarn spun per week, requir¬
ing 970,000 lbs. or 2,300 bales of cotton, at a cost of £28,300. ...
The total cotton consumed in this district (within a five-mile
radius round Blackburn) per week is 1,530,000 lbs., or 3,650
bales, at a cost of £44,625.... This is one-eighteenth of the whole
cotton spinning of the United Kingdom, and one-sixth of the
whole power-loom weaving.’

“Thus we see that, according to Mr. Baynes’s calculations, the
total number of cotton spindles in the United Kingdom is
28,800,000, and supposing these to be always working full time,
that the annual consumption of cotton ought to be 1,432,080,000
lbs. But as the import of cotton, less the export in 1856 and 1857,
was only 1,022,576,832 lbs., there must necessarily be a defi¬
ciency of supply equal to 409,503,168 lbs. Mr. Baynes, however,
who has been good enough to communicate with me on this
subject, thinks that an annual consumption of cotton based
upon the quantity used in the Blackburn district would be liable
to be overcharged, owing to the difference, not only in the counts

124 CONVERSION OF SURPLUS-VALUE INTO PROFIT

spun, but in the excellence of the machinery. He estimates the
total annual consumption of cotton in the United Kingdom at
1,000,000,000 lbs. But if he is right, and there really is an excess
of supply equal to 22,576,832 lbs., supply and demand seem to
be nearly balanced already, without taking into consideration
those additional spindles and looms which Mr. Baynes speaks
of as getting ready for work in his own district, and, by parity
of reasoning, probably in other districts also” (pp. 59, 60).

III. GENERAL ILLUSTRATION. THE COTTON CRISIS OF 1861-65
Preliminary History. 1845-60

1845. The golden age of cotton industry. Price of cotton very
low. L. Horner says on this point: “For the last eight years I have
not known so active a state of trade as has prevailed during the
last summer and autumn, particularly in cotton spinning
Throughout the half-year I have been receiving notices every
week of new investments of capital in factories, either in the
form of new mills being built, of the few that were untenanted
finding occupiers, of enlargements of existing mills, of new
engines of increased power, and of manufacturing machinery. ”
(Reports of Insp. of Fact., Oct. 1845, p. 13.)

1846. The complaints begin: “For a considerable time past I
have heard from the occupiers of cotton mills very general com¬
plaints of the depressed state of their trade ... for within the last
six weeks several mills have begun to work short time, usually
eight hours a day instead of twelve; this appears to be on the
increase.... There has been a great advance in the price of the
raw material,... there has been not only no advance in the manu¬
factured articles, but ... prices are lower than they were before
the rise in cotton began. From the great increase in the number
of cotton mills within the last four years, there must have been,
on the one hand, a greatly increased demand for the raw material,
and, on the other, a greatly increased supply in the market of
the manufactured articles; causes that must concurrently have
operated against profits, supposing the supply of the raw material
and the consumption of the manufactured article to have remained
unaltered; but, of course, in the greater ratio by the late short
supply of cotton, and the falling off in the demand for the manu¬
factured articles in several markets, both home and foreign. ”
(Reports of Insp. of Fact., Oct. 1846, p. 10.)

The rising demand for raw materials naturally went hand in
hand with a market flooded with manufactures. By the way, the

EFFECT OF PRICE FLUCTUATIONS

125

expansion of industry at that time and the subsequent stagnation
were not confined to the cotton districts. The carded wool district
of Bradford had only 318 factories in 1836 and 490 in 1846. These
figures do not by any means express the actual growth of produc¬
tion, since the existing factories were also considerably enlarged.
This was particularly true of the flax spinning-mills. “All have
contributed more or less, during the last ten years, to the over¬
stocking of the market, to which a great part of the present
stagnation of trade must be attributed.... The depression ...
naturally results from such rapid increase of mills and machin¬
ery.” (Reports of Insp. of Fact., Oct. 1846, p. 30.)

1847. In October, a money panic. Discount 8%. This was
preceded by the debacle of the railway swindle and the East Indian
speculation in accommodation bills. But:

“Mr. Baker enters into very interesting details respecting the in¬
creased demand, in the last few years, for cotton, wool, and flax,
owing to the great extension of these trades. He considers the in¬
creased demand for these raw materials, occurring, as it has, at a
period when the produce has fallen much below an average supply,
as almost sufficient, even without reference to the monetary
derangement, to account for the present state of these branches.
This opinion is fully confirmed, by my own observations, and
conversation with persons well acquainted with trade. Those sev¬
eral branches were all in a very depressed state, while discounts
were readily obtained at and under 5 per cent. The supply of raw
silk has, on the contrary, been abundant, the prices moderate,
and the trade, consequently, very active, till ... the last two or
three weeks, when there is no doubt the monetary derangement
has affected not only the persons actually engaged in the manu¬
facture, but more extensively still, the manufacturers of fancy
goods, who were great customers to the throwster. A reference to
published returns shows that the cotton trade had increased
nearly 27 per cent in the last three years. Cotton has consequently
increased, in round numbers, from 4d. to 6d. per lb., while twist,
in consequence of the increased supply, is yet only a fraction
above its former price. The woollen trade began its increase in
1836, since which Yorkshire has increased its manufacture of
this article 40 per cent, but Scotland exhibits a yet greater increase.
The increase of the worsted trade18 is still larger. Calculations

18 A sharp distinction is made in England between woollen manufacture,
which spins carded yarn from short wool and weaves it (main centre Leeds),
and worsted manufacture, which makes worsted yarn from long wool and
weaves it (main seat Bradford, in Yorkshire).— F.E.

120

CONVERSION OF SURPLUS-VALUE INTO PROFIT

give a result of upwards of 74 per cent increase within the same
period. The consumption of raw wool has therefore been immense.
Flax has increased since 1839 about 25 per cent in England,
22 per cent in Scotland, and nearly 90 per cent in Ireland18; the
consequence of this, in connexion with bad crops, has been that
the raw material has gone up £10 per ton, while the price of
yarn has fallen 6d. a bundle.” (Reports of Insp. of Fact., Oct.
1847, pp. 30-31.)

1849. Since late in 1848 business revived. “The price of flax
which has been so low as to almost guarantee a reasonable profit
under any future circumstances, has induced the manufacturers
to carry on their work very steadily.... The woollen manufactur¬
ers were exceedingly busy for a while in the early part of the
year.... I fear that consignments of woollen goods often take the
place of real demand, and that periods of apparent prosperity, i.e.,
of full work, are not always periods of legitimate demand. In
some months the worsted has been exceedingly good/in fact flou¬
rishing.... At the commencement of the period referred to, wool
was exceedingly low; what was bought by the spinners was well
bought, and no doubt in considerable quantities. When the price
of wool rose with the spring wool sales, the spinner had the ad¬
vantage, and the demand for manufactured goods becoming con¬
siderable and imperative, they kept it.” (Reports of Insp. of Fact.,
April 1849, p. 42.)

“If we look at the variations in the state of trade, which have
occurred in the manufacturing districts of the kingdom for a
period now of between three and four years, I think we must
admit the existence of a great disturbing cause somewhere ... but
may not the immensely productive power of increased machinery
have added another element to the same cause?” (Reports of Insp.
of Fact., April 1849, pp. 42, 43.)

In November 1848, and in May and summer of 1849, right up to
October, business flourished. “The worsted stuff of trade, of which
Bradford and Halifax are the great hives of industry, has been the
one most active; this trade has never before reached anything like
the extent, to which it has now attained.... Speculation, and
uncertainty as to the probable supply of cotton wool, have ever
had the effect of causing greater excitement, and more frequent
alterations in the state of that branch of manufacture, than any

18 This rapid expansion pf output of machine-made linen yarn in
Ireland dealt a death-blow to exports of linen made of hand-made yarn in
Germany (Silesia, Lusatia, and Westphalia).— F.E.

EFFECT OF PRICE FLUCTUATIONS

127

other. There is ... at present an accumulation in stock of the coars¬
er kinds of cotton goods, which creates anxiety on the part of the
smaller spinners, and is already acting to their detriment, having
caused several of them to work their mills short time. ” (Reports
of Insp. of Fact., Oct. 1849, pp. 64-65.)

1850. April. Business continued brisk. The exception: “The
great depression in a part of the cotton trade ... attributable to
the scarcity in the supply of the raw material more especially
adapted to the branch engaged in spinning low numbers of cotton
yarns, or manufacturing heavy cotton goods. A fear is entertained
that the increased machinery built recently for the worsted trade,
may be followed with a similar reaction. Mr. Baker computes
that in the year 1849 alone the worsted looms have increased their
produce 40 per cent, and the spindles 25 or 30 per cent, and they
are still increasing at the same rate.” (Reports of Insp. of Fact.,
April 1850, p. 54.)

1850. October. “The high price of raw cotton continues ... to
cause a considerable depression in this branch of manufacture,
especially in those descriptions of goods in which the raw material
constitutes a considerable part of the cost of production.... The
great advance in the price of raw silk has likewise caused a de¬
pression in many branches of that manufacture. ” (Reports of
Insp. of Fact., Oct. 1850, p. 14.)

And on pages 31 and 33 of the same report we learn that the Com¬
mittee of the Royal Society for the Promotion and Improvement
of the Growth of Flax in Ireland predicted that the high price of
flax, together with the low level of prices for other agricultural
products, ensured a considerable increase in flax production in the
ensuing year.

1853. April. Great prosperity. L. Horner says in his report: “At
no period during the last seventeen years that I have been offi¬
cially acquainted with the manufacturing districts in Lancashire
have I known such general prosperity; the activity in every branch
is extraordinary.” (Reports of Insp. of Fact., April 1853, p. 19.)

1853. October. Depression in the cotton industry. “Over-pro¬
duction.” (Reports of Insp. of Fact., Oct. 1853, p. 15.)

1854. April. “The woollen trade, although not brisk, has given
full employment to all the factories engaged upon that fabric,
and a similar remark applies to the cotton factories. The worsted
trade generally has been in an uncertain and unsatisfactory condi¬
tion during the whole of the last half-year.... The manufacture
°f flax and hemp are more likely to be seriously impeded, by
reason of the diminished supplies of the raw materials from Russia

128 CONVERSION OF SURPLUS-VALUE INTO PROFIT

due to the Crimean war.” (Reports of Insp. of Fact., April 1854,
p. 37.)

1859. “The trade in the Scottish flax districts still continues
depressed— the raw material being scarce, as well as high in price;
and the inferior quality of the last year’s crop in the Baltic, from
whence come our principal supplies, will have an injurious effect
on the trade of the district; jute, however, which is gradually su¬
perseding flax in many of the coarser fabrics, is neither unusually
high in price, nor scarce in quantity ... about one-half of the ma¬
chinery in Dundee is now employed in jute spinning.” (Reports
of Insp. of Fact., April 1859, p. 19.)— “Owing to the high price of
the raw material, flax spinning is still far from remunerating, and
while all the other mills are going full time, there are several
instances of the stoppage of flax machinery.... Jute spinning is ...
in a rather more satisfactory state, owing to the recent decline in
the price of material, which has now fallen to a very moderate
point.” (Reports of Insp. of Fact., Oct. 1859, p. 20.)

1861-64. American Civil War. Cotton Famine. The Greatest
Example of an Interruption in the Production Process through
Scarcity and Dearness of Raw Material

1860. April. “With respect to the state of trade, I am happy
to be able to inform you that, notwithstanding the high price of
raw material, all the textile manufactures, with the exception of
silk, have been fairly busy during the past half-year.... In some of
the cotton districts hands have been advertised for, and have
migrated thither from Norfolk and other rural counties.... There
appears to be, in every branch of trade, a great scarcity of raw
material. It is ... the want of it alone, which keeps us within
bounds. In the cotton trade, the erection of new mills, the forma¬
tion of new systems of extension, and the demand for hands, can
scarcely, I think, have been at any time exceeded. Everywhere
there are new movements in search of raw material. ” (Reports
of Insp. of Fact., April 1860, p. 57.)

1860. October. “The state of trade in the cotton, woollen, and
flax districts has been good; indeed in Ireland, it is stated to have
been 'very good’ for now more than a year; and that it would
have been still better, but for the high price of raw material. The
flax spinners appear to be looking with more anxiety than ever to
the opening out of India by railways, and to the development of
its agriculture, for a supply of flax which may be commensurate
with their wants. ” (Reports of Insp. of Fact., Oct. 1860, p. 37.)

EFFECT OF PRICE FLUCTUATIONS

129

1861. April, “The state of trade is at present depressed....
A few cotton mills are running short time, and many silk mills are
only partially employed. Raw material is high. In almost every
branch of textile manufacture it is above the price at which it
can be manufactured for the masses of the consumers. ” (Reports
of Insp. of Fact., April 1861, p. 33.)

It had become evident that in 1860 the cotton industry had over¬
produced. The effect of this made itself felt during the next few
years. “It has taken between two and three years to absorb the
over-production of 1860 in the markets of the world.” (Reports
of Insp. of Fact., December 1863, p. 127.) “The depressed state of
the markets for cotton manufactures in the East, early in I860,
had a corresponding effect upon the trade of Blackburn, in which
30,000 power-looms are usually employed almost exclusively
in the production of cloth to be consumed in the East. There was
consequently but a limited demand for labour for many months
prior to the effects of the cotton blockade being felt.,.. Fortu¬
nately this preserved many of the spinners and manufacturers
from being involved in the common ruin. Stocks increased in
value so long as they were held, and there had been consequently
nothing like that alarming depreciation in the value of property
which might not unreasonably have been looked for in such a
crisis.” (Reports of Insp. of Fact., Oct. 1862, pp. 29, 31.)

1861. October. “Trade has been for some time in a very de¬
pressed state.... It is not improbable indeed that during the winter
months many establishments will be found to work very short
time. This might, however, have been anticipated ... irrespective
of the causes which have interrupted our usual supplies of cotton
from America and our exports, short time must have been kept
during the ensuing winter in consequence of the great increase of
production during the last three years, and the unsettled state
of the Indian and Chinese markets.” (Reports of Insp. of Fact.,
Oct. 1861, p. 19.)

Cotton Waste. East Indian Cotton (Surat). Influence on the Wages
of Labourers. Improvement of Machinery. Adding Starch Flour
and Mineral Substitutes to Cotton. Effect of Starch Flour Sizing
on Labourers. Manufacturers of Finer Yarn Grades.

Manufacturers' Fraud

“A manufacturer writes to me thus: ‘As to estimates of consump¬
tion per spindle, I doubt if you take sufficiently into calculation
the fact that when cotton is high in price, every spinner of ordi-
nary yarns (say up to 40s.) (principally 12s. to 32s.) will raise his

130 CONVERSION OF SURPLUS-VALUE INTO PROFIT

counts as much as he can, that is, will spin 16s. where he used
to spin 12s., or 22s. in the place of 16s., and so on; and the manu¬
facturer using these fine yarns will make his cloth the usual
weight by the addition of so much more size. The trade is availing
itself of this resource at present to an extent which is even discred¬
itable. I have heard on good authority of ordinary export shirt¬
ing weighing 8 lbs. which was made of 5*/4 lbs. cotton and 23/4 lbs.
size.... In cloths of other descriptions as much as 50 per cent size
is sometimes added; so that a manufacturer may and does truly
boast that he is getting rich by selling cloth for less money per
pound than he paid for the mere yarn of which they are com¬
posed.’” (Reports of Insp. of Fact., April 1864, p. 27.)

“I have also received statements that the weavers attribute
increased sickness to the size which is used in dressing the warps
of Surat cotton, and which is not made of the same material as
formerly, viz., flour. This substitute for flour is said, however, to
have the very important advantage of increasing greatly the height
of the cloth manufactured, making 15 lbs. of the raw material
to weigh 20 lbs. when woven into cloth.” (Reports of Insp. of
Fact., Oct. 1863. This substitute was ground talcum, called China
clay, or gypsum, called French chalk.) “The earnings of the weav¬
ers (meaning the operatives) are much reduced from the employ¬
ment of substitutes for flour as sizing for warps. This sizing, which
gives weight to the yarn, renders it hard and brittle. Each thread
of the warp in the loom passes through a part of the loom called
‘a heald’, which consists of strong threads to keep the warp
in its proper place, and the hard state of the warp causes the
threads of the heald to break frequently; and it is said to take a
weaver five minutes to tie up the threads every time they break;
and a weaver has to piece these ends at least ten times as often
as formerly, thus reducing the productive powers of the loom in
the working-hours.” (Ibid., pp. 42-43.)

“In Ashton, Stalybridge, Mossley, Oldham, etc,, the reduction
of the time has been fully one-third, and the hours are lessening
every week.... Simultaneously with this diminution of time there
is also a reduction of wages in many departments. ” (Reports of
Insp. of Fact., Oct. 1861, pp. 12-13.) Early in 1861 there was a
strike among the mechanical weavers in some parts of Lancashire.
Several manufacturers had announced a wage reduction of 5 to
7.5%. The operatives insisted that the wage scale remain the same
while working-hours were reduced. This was not granted, and
a strike was called. A month later, the operatives had to give ip.
Rut then they got both. “In addition to the reduction of wages

EFFECT OF PRICE FLUCTUATIONS

131

to which the operatives at last consented, many mills are now
running short time.” (Reports of lnsp. of Fact., April 1861,
p. 23:)

1862. April. “The sufferings of the operatives since the date of
my last report have greatly increased; but at no period of the
history of manufactures, have sufferings so sudden and so severe
been borne with so much silent resignation and so much patient
self-respect.” (Reports of lnsp. of Fact., April 1862, p. 10.) “The
proportionate number of operatives wholly out of employment
at this date appears not to be much larger than it was in 1848,
when there was an ordinary panic of sufficient consequences to
excite alarm amongst the manufacturers, so much as to warrant
the collection of similar statistics of the state of the cotton trade
as are now issued weekly.... In May 1848, the proportion of cot¬
ton operatives out of work in Manchester out of the whole number
usually employed was 15 per cent, on short time 12 per cent,
whilst 70 per cent were in full work. On the 28th of May of the
present year, of the whole number of persons usually employed
15 per cent were out of work, 35 per cent were on short time,
and 49 per cent were working full time.... In some other places,
Stockport for example, the averages of short time and of non¬
employment are higher, whilst those of full time are less”,
because coarser numbers are spun there than in Manchester
(p. 16).

1862. October. “I find by the last return to Parliament that
there were 2,887 cotton factories in the United Kingdom in 1861,
2,109 of them being in my district (Lancashire and Cheshire).
I was aware that a very large proportion of the 2,109 factories
in my district were small establishments, giving employment
to few persons, but I have been surprised to find how large that
proportion is. In 392, or 19 per cent, the steam-engine or water¬
wheel is under 10 horse-power; in 345, or 16 per cent, the horse¬
power is above 10 and under 20; and in 1,372 the power is 20
horses and more _ A very large proportion of these small manu¬

facturers — being more than a third of the whole number — were
operatives themselves at no distant period; they are men without
command of capital.... The brunt of the burden then would have
to be borne by the remaining two-thirds. ” (Reports of lnsp. of
Fact., Oct. 1862, pp. 18, 19.)

According to the same report, 40, 146, or 11.3%, of the cotton
employees in Lancashire and Cheshire were then working full
time; 134,767, or 38%, were working short time; and 179,721, or
50.7%, were unemployed. After deducting the returns from Man-

132

CONVERSION OF SURPLUS-VALUE INTO PROFIT

chaster and Bolton, where mainly fine grades were spun, a line
relatively little affected by the cotton famine, the matter looks
still more unfavourable; namely, fully employed 8.5%, partly
employed 38%, and unemployed 53.5% (pp. 19 and 20).

“Working up good or bad cotton makes a material difference
to the operative. In the earlier part of the year, when manufactur¬
ers were endeavouring to keep their mills at work by using up all
the moderately priced cotton they could obtain, much bad cotton
was brought into mills in which good cotton was ordinarily used,
and the difference to the operatives in wages was so great that
many strikes took place on the ground that they could not make
a fair day’s wages at the old rates.... In some cases, although
working full time, the difference in wages from working bad
cotton was as much as one-half” (p. 27).

1863. April. “During the present year there will not be full
employment for much more than one-half of the cotton operatives
in the country.” (Reports of Insp. of Fact., April 1863, p. 14.)

“A very serious objection to the use of Surat cotton, as ilianufac-
turers are now compelled to use it, is that the speed of the machin¬
ery must be greatly reduced in the processes of manufacture. For
some years past every effort has been made to increase the speed of
machinery, in order to make the same machinery produce more
work; and the reduction of the speed becomes therefore a question
which affects the operative as well as the manufacturer; for the
chief part of the operatives are paid by the work done; for instance,
spinners are paid per lb. for the yarn spun, weavers per piece for
the number of pieces woven; and even with the other classes of
operatives paid by the week there would be a diminution of wages
in consideration of the less amount of goods produced. From in¬
quiries I have made, and statements placed in my hands, of the
earnings of cotton operatives during the present year,. I find there
is a diminution averaging 20 per cent upon their former earnings,
in some instances the diminution has been as much as 50 per cent,
calculated upon the same rate of wages as prevailed in 1861 ”
(p. 13). “...The sum earned depends upon ... the nature of the
material operated upon.... The position of the operatives in regard
to the amount of their earnings is very much better now (October
1863) than it was this time last year. Machinery has improved, the
material is better understood, and the operatives are able better
to overcome the difficulties they had to contend with at first. I re¬
member being in a sewing school (a charity institution for unem¬
ployed) at Preston last spring, when two young women, who had
been sent to work at a weaving shed the day before, upon the

EFFECT OF PRICE FLUCTUATIONS

133

representation of the manufacturer that they could earn 4s. per
week, returned to the school to be readmitted, complaining that
they could not have earned Is. per week. I have been informed of
‘self-acting minders’ ... men who manage a pair of self-acting
mules, earning at the end of a fortnight’s full work 8s. lid., and
that from this sum was deducted the rent of the house, the manu¬
facturer, however, returning half the rent as a gift. (How gener¬
ous!) The minders took away the sum of 6s. lid. In many places
the self-acting minders ranged from 5s. to 9s. per week, and the
weavers from 2s. to 6s. per week in the last months of 1862.... At
the present time a much more healthy state of things exists,
although there is still a great decrease in the earnings in most
districts.... There are several causes which have tended to the
reduction of earnings, besides the shorter staple of the Surat cotton
and its dirty condition; for instance, it is now the practice to mix
‘waste’ largely with Surat, which consequently increases the diffi¬
culties of the spinner or minder. The threads, from their short¬
ness of fibre, are more liable to break in the drawing out of the
mule and in the twisting of the yarn, and the mule cannot be kept
so continuously in motion.... Then, from the great attention
required in watching the threads in weaving, many weavers can only
mind one loom, and very few can mind more than two looms....
There has been a direct reduction of 5, 7 1/2 and 10 per cent upon
the wages of the operatives.... In the majority of cases the operative
has to make the best of his material, and to earn the best wages
he can at the ordinary rates..,. Another difficulty the weavers
have sometimes to contend with is, that they are expected to
produce well-finished cloth from inferior materials, and are subject
to fine for the flaws in their work. ” (Reports of Insp. of Fact.,
Oct. 1863, pp. 41-43.)

Wages were miserable, even where work was full time. The
cotton workers willingly offered themselves for all public works
such as drainage, road-building, stone-breaking and street-paving,
in which they were employed, to get their keep from the authori¬
ties (although this practically amounted to assistance to the
manufacturer. See Book I, S. 598/589*). The whole bourgeoisie
stood guard over the labourers. Were the worst dog’s wages offered,
and a labourer refused to accept them, the Relief Committee
would strike him from its lists. It was in a way a golden age for
the manufacturers, for the labourers had either to starve or work
at a price most profitable for the bourgeois. The Relief Committees

* English edition: pp. 574-75. — Ed.

134

CONVERSION OF SURPLUS-VALUE INTO PROFIT

acted as watch-dogs. At the same time, the manufacturers acted in
secret agreement with the government to hinder emigration as
much as possible, partly to retain in readiness the capital invested
in the flesh and blood of the labourers, and partly to safeguard the
house-rent squeezed out of the labourers.

“The Relief Committees acted with great strictness upon this
point. If work was offered, the operatives to whom it was proposed
were struck off the lists, and thus compelled to accept the offer.
When they objected to accept work... the cause has been that
their earnings would have been merely nominal, and the work
exceedingly severe.” (Reports of Insp. of Fact., Oct. 1863,
p. 97.)

The operatives were willing to perform any work given to them
under the Public Works Act. “The principle upon which indus¬
trial employments were organised varied considerably in differ¬
ent towns, but in those places even in which the outdoor work
was not absolutely a labour test the manner in which labour ^as
remunerated by its being paid for either at the exact rate of relief,
or closely approximating the rate, it became in fact a labour
test” (p. 69). “The Public Works Act of 1863 was intended to
remedy this inconvenience, and to enable the operative to earn
his day’s wages as an independent labourer. The purpose of this
Act was three-fold: firstly, to enable local authorities to borrow
money of the Exchequer Loan Commissioners (with consent of
the President of the Central Relief Committee); secondly, to
facilitate the improvement of the towns of the cotton districts;
thirdly, to provide work and remunerative wages to the unemployed
operatives. ” Loans to the amount of £ 883,700 had been granted
under this'Act up to the end of October 1863 (p. 70). The works
undertaken were mainly canalisation, road-building, street-paving,
water-works reservoirs, etc.

Mr. Henderson, president of the committee in Blackburn, wrote
with reference to this to factory inspector Redgrave: “Nothing in
my experience, during the present period of suffering and distress,
has struck me more forcibly or given me more satisfaction, than the
cheerful alacrity with which the unemployed operatives of this
district have accepted of the work offered to them through the
adoption of the Public Works Act, by the Corporation of Black¬
burn. A greater contrast than that presented between the cotton
spinner as a skilled workman in a factory, and as a labourer in a
sewer 14 or 18 feet deeD, can scarcely be conceived. ” (Depending
on the size of his family, he earned 4 to 12s. per week, this enor¬
mous amount providing sometimes fora family of eight. The towns-

EFFECT OF PRICE FLUCTUATIONS

135

men derived a double profit from this. In the first place, they
secured money to improve their smoky and neglected cities at
exceptionally low interest rates. In the second place, they paid the
labourers far less than the regular wage.) “Accustomed as he had
been to a temperature all but tropical, to work at which agility
and delicacy of manipulation availed him infinitely more than
muscular strength and to double and sometimes treble the remu¬
neration which it is possible for him now to obtain, his ready
acceptance of the proffered employment involved an amount of
self-denial and consideration the exercise of which is most cred¬
itable. In Blackburn the men have been tested at almost every
variety of outdoor work; in excavating a stiff heavy clay soil to a
considerable depth, in draining, in stone-breaking, in road-making,
and in excavating for street sewers to a depth of 14, 16, and
sometimes 20 feet. In many cases while thus employed they are
standing in mud and water to the depth of 10 or 12 inches, and in
all they are exposed to a climate which, for chilly humidity is not
surpassed I suppose, even if it is equalled, by that of any district
in England” (pp. 91-92). “The conduct of the operatives has been
almost blameless, and their readiness to accept and make the best
of outdoor labour” (p. 69).

1864. April. “Complaints are occasionally made in different dis¬
tricts of the scarcity of hands, but this deficiency is chiefly felt in
particular departments, as, for instance, of weavers.... These com¬
plaints have their origin as much from the low rate of wages which
the hands can earn owing to the inferior qualities of yarn used, as
from any positive scarcity of workpeople even in that particular
department. Numerous differences have taken place during the
past month between the masters of particular mills and their oper¬
atives in respect of the wages. Strikes, I am sorry to say, are but
too frequently resorted to, ... the effect of the Public Works Act is
felt as a competition by the mill-owners. The local committee at
Bacup has suspended operations, for although all the mills are
not running, yet a scarcity of hands has been experienced.” (Re¬
ports of Insp. of Fact., April 1864, pp. 9, 10.) It was indeed high
time for the manufacturers. Due to the Public Works Act the
demand for labour grew so strong that many a factory hand was
earning 4 to 5 shillings daily in the quarries of Bacup. And so the
public works were gradually suspended — this new edition of the
Ateliers nationaux of 1848, but this time instituted in the
interests of the bourgeoisie.

136

CONVERSION OP SURPLUS-VALUE INTO PROFIT

Experiments in corpore vili

“Although I have given the actual earnings of the operatives
(fully employed) in several mills, it does not follow that they
earn the same amount week by week. The operatives are subject
to great fluctuation, from the constant experimentalising of the
manufacturers upon different kinds and proportions of cotton and
waste in the same mill, the ‘mixings’ as it is called, being fre¬
quently changed; and the earnings of the operatives rise and fall
with the quality of the cotton mixings; sometimes they have
been within 15 per cent of former earnings, and then in a week or
two, they have fallen from 50 to 60 percent. ” Inspector Redgrave,
who makes this report, then proceeds to cite wage figures taken
from actual practice, of which the following examples may suffice:

A, weaver, family of 6, employed 4 days a week, 6s. 8.5d.;
B, twister, employed 4.5 days a week, 6s.; C, weaver, family of 4,
employed 5 days a week, 5s. Id.; D, slubber, family of 6, employed
4 days a week, 7s. 10d.; E, weaver, family of 7, employed 3
days a week, 5s., etc. Redgrave continues: “The above returns
are deserving of consideration, for they show that work would
become a misfortune in many a family, as it not merely reduces
the income, but brings it so low as to be utterly insufficient to pro¬
vide more than a small portion of the absolute wants, were it not
that supplemental relief is granted to operatives when the wages
of the family do not reach the sum that would be given to them as
relief, if they were all unemployed.” (Reports of Insp. of Fact.,
Oct. 1863, pp. 50-53.)

“In no week since the 5th of June last was there more than two
days seven hours and a few minutes employment for all the
workers.” (Ibid., p. 121.)

From the beginning of the crisis to March 25, 1863, nearly three
million pounds sterling were expended by the guardians, the
Central Relief Committee, and the Mansion House Committee.
(Ibid., p. 13.)

“In a district in which the finest yarn is spun ... the spinners
suffer an indirect reduction of 15 per cent in consequence of the
change from South Sea Island to Egyptian cotton _ In an exten¬

sive district, in many parts of which waste is largely used as a
mixture with Surat ... the spinners have had a reduction of 5 per
cent, and have lost from 20 to 30 per cent in addition, through
working Surat and waste. The weavers are reduced from 4 looms
to 2 looms. In 1860, they averaged 5s. 7d. per loom, in 1863, only
3s. 4d. The fines, which formerly varied from 3d. to 6d. (for the

EFFECT OF PRICE FLUCTUATIONS

137

weaver) on American, now run up to from Is. to 3s. 6d.” In one
district, where Egyptian cotton was used with an admixture of
East Indian “the average of the mule spinners, which was in 1860
18s. to 25s., now averages from 10s. to 18s. per week, caused, in
addition to inferior cotton, by the reduction of the speed of the
mule to put an extra amount of twist in the yarn, which in ordi¬
nary times would be paid for according to list” (pp. 43, 44).
“Although the Indian cotton may have been worked to profit by the
manufacturer, it will be seen (see the wage list on p. 53) that the
operatives are sufferers compared with 1861, and if the use of
Surat be confirmed, the operatives will want to earn the wages
of 1861, which would seriously affect the profits of the manufac¬
turer, unless he obtain compensation either in the price of the
raw cotton or of his products” (p. 105).

House-Rent. “The rent is frequently deducted from the wages of
operatives, even when working short time, by the manufacturers
whose cottages they may be occupying. Nevertheless the value of
this class of property has diminished, and houses may be obtained
at a reduction of from 25 to 50 per cent upon the rent of the houses
in ordinary times; for instance, a cottage which would have
cost 3s. 6d. per week can now be had for 2s. 4d. per week, and
sometimes even for less” (p. 57).

Emigration. The employers were naturally opposed to emigra¬
tion of labourers, because, on the one hand, “looking forward to
the recovery of the cotton trade from its present depression, they
keep within their reach the means whereby their mills can be
worked in the most advantageous manner”. On the other hand,
“many manufacturers are owners of the houses in which opera¬
tives employed in their mills reside, and some unquestionably
expect to obtain a portion of the back rent owing” (p. 96).

Mr. Bernall Osborne said in a speech to his parliamentary
constituents on October 22, 1864, that the labourers of Lancashire
had behaved like the ancient philosophers (Stoics). Not like sheep?

CHAPTER VII

SUPPLEMENTARY REMARKS

Suppose, as is assumed in this part, the amount of profit in
any particular sphere of production equals the sum of the surplus-
value produced by the total capital invested in that sphere. Even
then the bourgeois will not consider his profit as identical with
surplus-value, i.e., with unpaid surplus-labour, and, to be sure,
for the following reasons:

1) In the process of circulation he forgets the process of produc¬
tion. He thinks that surplus-value is made when he realises the
value of commodities, which includes realisation of their surplus-
value. [A blank space which follows in the manuscript, in¬
dicates that Marx intended to dwell in greater detail on this
point. — F.E. 1

2) Assuming a uniform degree of exploitation, we have seen
that regardless of all modifications originating in the credit
system, regardless of the capitalists’ efforts to outwit and cheat
one another, and, lastly, regardless of any favourable choice of
the market — the rate of profit may differ considerably, depending
on the low or high prices of raw materials and the experience of
the buyer, on the relative productivity, efficiency and cheapness
of the machinery, on the greater or lesser efficiency of the aggregate
arrangement in the various stages of the productive process,
elimination of waste, the simplicity and efficiency of management
and supervision, etc. In short, given the surplus-value for a certain
variable capital, it still depends very much on the individual
business acumen of the capitalist, or of his managers and sales¬
men, whether this same surplus-value is expressed in a greater or
smaller rate of profit, and accordingly yields a greater or smaller
amount of profit. Let the same surplus-value of £1,000, the
product of £1,000 in wages, obtain in enterprise A for a constant
capital of £9,000, and in enterprise B for £11,000. In case A we

SUPPLEMENTARY REMARKS

139

have = or 10%- In case B we have p:”iT7ft55’ or 81/s%-

The total capital produces relatively more profit in enterprise A
than in B, because of a higher rate of profit, although the variable
capital advanced iD both cases=£l,000 and the surplus-value
produced by each likewise=£l,000, so that in both cases there
exists the same degree of exploitation of the same number of la¬
bourers. This difference in the presentation of the same mass of
surplus-value, or the difference in the rates of profit, and therefore
in the profit itself, while the exploitation of labour is the same,
may also be due to other causes. Still, it may also be due wholly
to a difference in the business acumen with which both establish¬
ments are run. And this circumstance misleads the capitalist,
convinces him that his profits are not due to exploiting labour,
but, at least in part, to other independent circumstances, and
particularly his individual activity.

The analyses in this first part demonstrate the incorrectness of
the view (Rodbertus*) according to which (as distinct from ground-
rent, in which case, for example, the area of real estate remains
the same and yet the rent rises) a change in the magnitude of an
individual capital is supposed to have no influence on the ratio
of profit to capital, and thus on the rate of profit, because if the
mass of profit should grow, so does the mass of capital upon which
it is calculated, and vice versa.

This is true only in two cases. First, when— assuming that all
other circumstances, especially the rate of surplus-value, remain
unchanged — there is a change in the value of that commodity
which is a money-commodity. (The same occurs in a merely nomi¬
nal change of value, the rise or fall of mere tokens of value, other
conditions being equal.) Let the total capital=£100, and the profit
=£20, the rate of profit being=20%. Should gold fall by half,
or double, the same capital previously worth only £100, will be
worth £200 if it falls and the profit will be worth £40, i.e., it
will be expressed in so much money instead of the former £20;
if it rises, the capital of £100 will be worth only £50, and the
profit will be represented by a product, whose value will be £10.
But in either case 200:40=50:10=100:20=20%. In all these

* Rodbertus, Sociale Briefe an von Kirchmann, Dritter Brief: Wider-
legung der Ricardo' schen Lehre von der Grundrente und Begriindung einer
neucn Rententheorie , Berlin, 1851, S. 125. — Ed.

140 CONVERSION OF SURPLUS-VALUE INTO PROFIT

examples there would, however, have been no actual change in
the magnitude of capital-value, and only in the money-expression
of the same value and the same surplus-value. For this reason

•jr, or the rate of profit, could not be affected.

In the second case there is an actual change of magnitude in the
value, but unaccompanied by a change in the ratio of v to c; in
other words, with a constant rate of surplus-value the relation of
capital invested in labour-power (variable capital considered as an
index of the amount of labour-power set in motion) to the capital
invested in means of production remains the same. Under these

circumstances, no matter whether we have C, or nC, or — , e.g.,

1,000, or 2,000, or 500, and the rate of profit being 20%, the
profit = 200 in the first case, =400 in the second, and = 100 in the
third. But 200 : 1,000=400 : 2,000 = 100 : 500 = 20%. That is to say,
the rate of profit is unchanged, because the composition of capital
remains the same and is not affected by the change in magnitude.
Therefore, an increase or decrease in the amount of profit shows
merely an increase or decrease in the magnitude of the invested
capital.

In the first case there is, therefore, but the appearance of a
change in the magnitude of the employed capital, while in the
second case there is an actual change in magnitude, but no change
in the organic composition of the capital, i.e., in the relative pro¬
portions of its variable and constant portions. But with the excep¬
tion of these two cases, a change in the magnitude of the employed
capital is either the result of a preceding change in the value of one
of its components, and therefore of a change in the relative magni¬
tude of these components (as long as the surplus-value itself does
not change with the variable capital); or, this change of magni¬
tude (as in labour-processes on a large scale, introduction of new
machinery, etc.) is the cause of a change in the relative magnitude
of its two organic components. In all these cases, other circum¬
stances remaining the same, a change in the magnitude of the em¬
ployed capital must therefore be accompanied simultaneously
by a change in the rate of profit.

A rise in the rate of profit is always due to a relative or absolute
increase of the surplus-value in relation to its cost of production,
i.e., to the advanced total capital, or to a decrease in the difference
between the rate of profit and the rate of surplus-value.

SUPPLEMENTARY REMARKS

141

Fluctuations in the rate of profit may occur irrespective of
changes in the organic components of the capital, or of the absolute
magnitude of the capital, through a rise or fall in the value of
the fixed or circulating advanced capital caused by an increase or a
reduction of the working-time required for its reproduction, this
increase or reduction taking place independently of the already
existing capital. The value of every commodity — thus also of the
commodities making up the capital — is determined not by the
pecessary labour-time contained in it, but by the social labour-time
required for its reproduction. This reproduction may take place
under unfavourable or under propitious circumstances, distinct
from the conditions of original production. If, under altered con¬
ditions, it takes double or, conversely, half the time, to reproduce
the same material capital, and if the value of money remains
unchanged, a capital formerly worth £100 would be worth £200, or
£50 respectively. Should this appreciation or depreciation affect
all parts of capital uniformly, then the profit would also be accor¬
dingly expressed in double, or half, the amount of money. But if it
involves a change in the organic composition of the capital, if
the ratio of the variable to the constant portion of capital rises or
falls, then, other circumstances remaining the same, the rate of
profit will rise with a relatively rising variable capital and fall
with a relatively falling one. If only the money-value of the
advanced capital rises or falls (in consequence of a change in the
value of money), then the money-expression of the surplus-value
rises, or falls, in the same proportion. The rate of profit remains
unchanged.

PART II

CONVERSION OF PROFIT
INTO AVERAGE PROFIT

CHAPTER VIII

DIFFERENT COMPOSITIONS OF CAPITALS
IN DIFFERENT BRANCHES OF PRODUCTION
AND RESULTING DIFFERENCES IN RATES OF PROFIT

In the preceding part we demonstrated, among other things,
that the rate of profit may vary— rise or fall — while the rate of
surplus-value remains the same. In the present chapter we assume
that the intensity of labour exploitation, and therefore the rate of
surplus-value and the length of the working-day, are the same in
all the spheres of production into which the social labour of a given
country is divided. Adam Smith* has already comprehensively
shown that the numerous differences in the exploitation of labour
in various spheres of production balance one another by means
of all kinds of existing compensations, or compensations accepted
as such on the basis of current prejudice, so that they are merely
evanescent distinctions and are of no moment in a study of the
general relations. Other differences, for instance those in the wage
scale, rest largely on the difference between simple and compli¬
cated labour mentioned in the beginning of Book I (S. 19),** and
have nothing to do with the intensity of exploitation in the
different spheres of production, although they render the lot of the
labourer in those spheres very unequal. For instance, if the labour
of a goldsmith is better paid than that of a day-labourer, the for¬
mer’s surplus-labour produces proportionately more surplus-value
than the latter’s. And although the equalising of wages and work¬
ing-days, and thereby of the rates of surplus-value, among different
spheres of production, and even among different investments
of capital in the same sphere of production, is checked by all kinds
of local obstacles, it is nevertheless taking place more and more
with the advance of capitalist production and the subordination of
all economic conditions to this mode of production. The study

* A. Smith, An Inquiry into the Nature and Causes of the Wealth of
Nations, Vol. I, Chap. X. — Ed.

** English edition: p. 44 .—Ed.

DIFFERENT COMPOSITIONS OF CAPITALS

143

of such frictions, while important to any special work on wages,
may be dispensed with as incidental and irrelevant in a general
analysis of capitalist production. In a general analysis of this kind
it is usually always assumed that the actual conditions correspond
to their conception, or, what is the same, that actual conditions
are represented only to the extent that they are typical of their
own general case.

The difference in the rates of surplus-value in different countries,
and consequently the national differences in the degree of exploita¬
tion of labour, are immaterial for our present analysis. What we
want to show in this part is precisely the way in which a general
rate of profit takes shape in any given country. It is evident, how¬
ever, that a comparison of the various national rates of profit
requires only a collation of the previously studied with that which
is here to be studied. First one should consider the differences in
the national rates of surplus-value, and then, on the basis of these
given rates, a comparison should be made of the differences in
the national rites of profit. In so far as those differences are not
due to differences in the national rates of surplus-value, they must
be due to circumstances in which the surplus-value is assumed,
just as in the analysis of this chapter, to be universally the same,
i.e., constant.

We demonstrated in the preceding chapter that, assuming the
rate of surplus-value to be constant, the rate of profit obtaining
for a given capital may rise or fall in consequence of circumstances
which raise or lower the value of one or the other portion of con¬
stant capital, and so affect the proportion between the variable
and constant components of capital. We further observed that cir¬
cumstances which prolong or reduce the time of turnover of an
individual capital may similarly influence the rate of profit.
Since the mass of the profit is identical with the mass of the
surplus-value, and with the surplus-value itself, it was also seen
that the mass of the profit — as distinct from the rate of profit — is
not affected by the aforementioned fluctuations of value. They
only modify the rate in which a given surplus-value, and therefore
a profit of a given magnitude, express themselves; in other words,
they modify only the relative magnitude of profit, i.e., its magni¬
tude compared with the magnitude of the advanced capital. Inas¬
much as capital was tied up or released by such fluctuations of
value, it was not only the rate of profit, but the profit itself, which
was likely to be affected in this indirect manner. However, this
has then always applied only to such capital as was already inve¬
sted, and not to new investments. Besides, the increase or reduc-

144 CONVERSION OF PROFIT INTO AVERAGE PROFIT

tion of profit always depended on the extent to which the same
capital could, in consequence of such fluctuation of value, set in
motion more or less labour; in other words, it depended on the
extent to which the same capital could, with the rate of surplus-
value remaining the same, obtain a larger or smaller amount of
surplus-value. Far from contradicting the general rule, or from
being an exception to it, this seeming exception was really but a
special case in the application of the general rule.

It was seen in the preceding part that, the degree of exploitation
remaining constant, changes in the value of the component parts
of constant capital and in the time of turnover of capital are
attended by changes in the rate of profit. The obvious conclusion
is that the rates of profit in different spheres of production exist¬
ing side by side have to differ when, other circumstances remain¬
ing unchanged, the time of turnover of capitals employed in the
different spheres differs, or when the value-relation of the organic
components of these capitals differs in the various branches of
production. What we previously regarded as changes occurring
successively with one and the same capital is now to be regarded
as simultaneous differences among capital investments existing
side by side in different spheres of production.

In these circumstances we shall have to analyse: 1) the difference
in the organic composition of capitals, and 2) the difference in
their period of turnover.

The premise in this entire analysis is naturally that by speaking
of the composition or turnover of a capital in a certain line of
production we always mean the average normal proportions of
capital invested in this sphere, and generally the average in the
total capital employed in that particular sphere, and not the
accidental differences of the individual capitals.

Since it is further assumed that the rate of surplus-value and the
working-day are constant, and since this assumption also implies
constant wages, a certain quantity of variable capital represents
a definite quantity of labour-power set in motion, and therefore a
definite quantity of materialised labour. If, therefore, £100 repre¬
sent the weekly wage of 100 labourers, indicating 100 actual
labour-powers, then n times £100 indicate the labour-powers of n

times 100 labourers, and - those of — labourers. The variable

n n

capital -thus serves here (as is always the case when the wage is
given) as an index of the amount of labour set in motion by a
definite total capital. Differences in the magnitude of the employed
variable capitals serve, therefore, as indexes of the difference

DIFFERENT COMPOSITIONS OF CAPITALS

145

in Ihe amount of employed labour-power. If £100 indicate 100
labourers per week, and represent 6,000 working-hours at 60 work¬
ing-hours per week, then £200 represent 12,000, and £50 only
3,000 working-hours.

By composition of capital we mean, as stated in Book I, the
proportion of its active and passive components, i.e., of variable
and constant capital. Two proportions enter into consideration
under this heading. They are not equally important, although
they may produce similar effects under certain circumstances.

The first proportion rests on a technical basis, and must be
regarded as given at a certain stage of development of the produc¬
tive forces. A definite quantity of labour-power represented by a
definite number of labourers is required to produce a definite
quantity of products in, say, one day, and — what is self-evident —
thereby to consume productively, i.e., to set in motion, a definite
quantity of means of production, machinery, raw materials, etc.
A definite number of labourers corresponds to a definite quantity
of means of production, and hence a definite quantity of living
labour to a definite quantity of labour materialised in means of
production. This proportion differs greatly in different spheres of
production, and frequently even in different branches of one and
the same industry, although it may by coincidence be entirely or
approximately the same in entirely separate lines of industry.

This proportion forms the technical composition of capital and
is the real basis of its organic composition.

However, it is also possible that this first proportion may be the
same in different lines of industry, provided variable capital is
merely an index of labour-power and constant capital merely an
index of the mass of means of production set in motion by this
labour-power. For instance, certain work in copper and iron may
require the same ratio of labour-power to mass of means of pro¬
duction. But since copper is more expensive than iron, the value-
relation between variable and constant capital is different in
each case, and hence also the value-composition of the two total
capitals. The difference between the technical composition and
the value composition is manifested in each branch of industry
in that the value-relation of the two portions of capital may vary
while the technical composition is constant, and the value-relation
may remain the same while the technical composition varies.
The latter case will, of course, be possible only if the change in
the ratio of the employed masses of means of production and
labour-power is compensated by a reverse change in their values.

The value-composition of capital, inasmuch as it is determined

146

CONVERSION OF PROFIT INTO AVERAGE PROFIT

by, and reflects, its technical composition, is called the organic
composition of capital.20

In the case of variable capital, therefore, we assume that it is
the index of a definite quantity of labour-power, or of a definite
number of labourers, or a definite quantity of living labour set in
motion. We have seen in the preceding part that a change in the
magnitude of the value of variable capital might eventually indi¬
cate nothing but a higher or lower price of the same mass of labour.
But here, where the rate of surplus-value and the working-day are
taken to be constant, and the wages for a definite working period-
are given, this is out of the question. On the other hand, a
difference in the magnitude of the constant capital may likewise
be an index of a change in the mass of means of production set in
motion by a definite quantity of labour-power. But it may also
stem from a difference in value between the means of production
set in motion in one sphere and those of another. Both points of
view must therefore be examined here.

Finally, we must take note of the following essential facts:

Let £100 be the weekly wage of 100 labourers. Let the weekly
working-hours =60. Furthermore, let the rate of surplus-value =
=100%. In this case, the labourers work 30 of the 60 hours for
themselves and 30 hours gratis for the capitalist. In fact, the £100
of wages represent just the 30 working-hours of 100 labourers, or
altogether 3,000 working-hours, while the other 3,000 hours
worked by the labourers are incorporated in the £100 of surpluo-
value, or in the profit pocketed by the capitalist. Although the
wage of £100 does not, therefore, express the value in which the
weekly labour of the 100 labourers is materialised, it indicates
nevertheless (since the length of the working-day and the rate of
surplus-value are given) that this capital sets in motion 100
labourers for 6,000 working-hours. The capital of £100 indicates
this, first, because it indicates the number of labourers set in
motion, with £1 = 1 labourer per week, hence £100=100 labourers;
and, secondly, because, since the rate of surplus-value is given
as 100%, each of these labourers performs twice as much work as
is contained in his wages, so that £1, i.e., his wage, which is the
expression of half a week of labour, actuates a whole week’s la¬
bour, just as £100 sets in motion 100 weeks of labour, although it

20 The above has already been briefly developed in the third edition
of Book I in the beginning of Kap. XXIII, S. 628 [English edition: begin¬
ning of Ch. XXV, p. 612.— Ed.). Since the two first editions do not contain
that passage, its repetition here is all the more desirable. — F.E.

DIFFERENT COMPOSITIONS OF CAPITALS

147

contains only 50. A very essential distinction is thus to be made in
regard to variable capital laid out in wages. Its value as the sum
of wages, i.e., as a certain amount of materialised labour, is to
be distinguished from its value as a mere index of the mass of
living labour which it sets in motion. The latter is always greater
than the labour which it incorporates, and is, therefore, repre¬
sented by a greater value than that of the variable capital. This
greater value is determined, on the one hand, by the number of
labourers set in motion by the variable capital and, on the other,
by the quantity of surplus-labour performed by them.

It follows from this manner of looking upon variable capital
that:

When a capital invested in production sphere A expends only
100 in variable capital for each 700 of total capital, leaving 600
for constant capital, while a capital invested in production sphere
B expends 600 for variable and only 100 for constant capital, then
capital A of 700 sets in motion only 100 of labour-power, or, in
the terms of our previous assumption, 100 weeks of labour, or
6,000 hours of living labour, while the same amount of capital
B will set in motion 600 weeks of labour, or 36,000 hours of living
labour. The capital in A would then appropriate only 50 weeks
of labour, or 3,000 hours of surplus labour, while the same amount
of capital in B would appropriate 300 weeks of labour, or 18,000
hours. Variable capital is not only the index of the labour em¬
bodied in it. When the rate of surplus-value is known it is also an
index of the amount of labour set in motion over and above that
embodied in itself, i.e., of surplus-labour. Assuming the same

100

intensity of exploitation, the profit in the first case would be
=1/7=14*/7%, and in the second case, ^=*/7=85B/7%, or a six¬
fold rate of profit. In this case, the profit itself would actually be
six times as great, 600 in B as against 100 in A, because the same
capital set in motion six times as much living labour, which at the
same level of exploitation means six times as much surplus-
value, and thus six times as much profit.

But if the capital invested in A were not 700 but £7,000, while
that invested in B were only £700, and the organic composition
of both were to remain the same, then the capital in A would
employ £1,000 of the £7,000 as variable capital, that is, 1,000
labourers per week =60,000 hours of living labour, of which 30,000
would be surplus-labour. Yet each £700 of the capital in A would
continue to set in motion only one-sixth as much living labour,

148

CONVERSION OK PROFIT INTO AVERAGE PROFIT

and hence only one-sixth as much surplus-labour, as the capital
in B, and would produce only one-sixth as much profit. If we con-

1 000 100

sider the rate of profit, then in A Yom=T00~^^7'>/'° ’ aS compared

600

with — ’ or 855/7 % , in B. Taking equal amounts of capital,

700

the rates of profit differ because, owing to the different masses of
living labour set in motion, the masses of surplus-value, and thus
of profit, differ, although the rates of surplus-value are the same.

We get practically the same result if the technical conditions
are the same in both spheres of production, but the value of the
elements of the employed constant capital is greater or smaller
in the one than in the other Let us assume that both invest £100 as
variable capital and therefore employ 100 labourers per week
to set in motion the same quantity of machinery and raw materials.
But let the latter be more expensive in B than in A. For instance,
let the £100 of variable capital set in motion £200 of constant
capital in A, and £400 in B. With the same rate of surplus-
value, of 100%, the surplus-value produced is in either case equal
to £100. Hence, the profit is also equal to £100 in both. But the

rate of profit in A is 200 100 • =1/3 = ^ ® is

100 c v

400 ~V6=20%. In fact, if we select a certain aliquot

part of the total capital in either case, we find that in every £100
of B only £20, or one-fifth, constitute variable capital, while in
every £100 of A or one-third, form variable capital. B pro¬

duces less profit for each £100, because it sets in motion less living
labour than A. The difference in the rates of profit thus resolves
itself once more, in this case, into a difference of the masses
of profit, because of the masses of surplus-value, produced by
each 100 of invested capital.

The difference between this second example and the first is just
this: The equalisation between A and B in the second case would
require only a change in the value of the constant capital of either
A or B, provided the technical basis remained the same. But in
the first case the technical composition itself is different in the
two spheres of production and would have to be completely
changed to achieve an equalisation.

The different organic composition of various capitals is thus in¬
dependent of their absolute magnitude. It is always but a question
of how much of every 100 is variable and how much constant capital.
Capitals of different magnitude, calculated in percentages, or.

DIFFERENT COMPOSITIONS OF CAPITALS

149

what amounts to the same in this case, capitals of the same magni¬
tude operating for the same working-time and with the same
degree of exploitation may produce very much different amounts of
profit, because of surplus-value, for the reason that a difference in
the organic composition of capital in different spheres of produc¬
tion implies a difference in their variable part, thus a difference in
the quantities of living labour set in motion by them, and
therefore also a difference in the quantities of surplus-labour
appropriated by them. And this surplus-labour is the substance
of surplus-value, and thus of profit. In different spheres of
production equal portions of the total capital comprise unequal
sources of surplus-value, and the sole source of surplus-value is living
labour. Assuming the same degree of labour exploitation, the mass
of labour set in motion by a capital of 100, and consequently the
mass of surplus-labour appropriated by it, depend on the magnitude
of its variable component. If a capital, consisting in per cent
of 90c+10v, produced as much surplus-value, or profit, at the
same degree of exploitation as a capital consisting of 10c+90y, it
would be as plain as day that the surplus-value, and thus value
in general, must have an entirely different source than labour,
and that political economy would then be deprived of every
rational basis. If we are to assume all the time that £1 stands for
the weekly wage of a labourer working 60 hours, and that the rate
of surplus-value is 100?4, then it is evident that the total value-
product of one labourer in a week, is £2. Ten labourers would then
produce no more than £20. And since £10 of the £20 replace the
wages, the ten labourers cannot produce more surplus-value than
£10. On the other hand, 90 labourers, whose total product is £180,
and whose wages amount to £90, would produce a surplus-value
of £90. The rate of profit in the first case would thus be 10%, and
in the other 90%. If this were not so, then value and surplus-value
would be something else than materialised labour. Since capitals
in different spheres of production viewed in percentages —or as
capitals of equal magnitude — are divided differently into variable
and constant capital, setting in motion unequal quantities of
living labour and producing different surplus-values, and therefore
profits, it follows that the rate of profit, which consists precisely
of the ratio of surplus-value to total capital in per cent, must
also differ.

Now, if capitals in different spheres of production, calculated
in per cent, i. e., capitals of equal magnitude, produce unequal
profits in consequence of their different organic composition, then
it follows that the profits of unequal capitals in different spheres

9—2494

150

CONVERSION OP PROFIT INTO AVERAGE PROFIT

o f production cannot be proportional to their respective magnitudes,
or that profits in different spheres of production are not pro¬
portional to the magnitude of the respective capitals invested in
them. For if profits were to grow pro rata to the magnitude of
invested capital, it would mean that in per cent the profits would
be the same, so that in different spheres of production capitals of
equal magnitude would have equal rates of profit, in spite of
their different organic composition. It is only in the same sphere
of production, where we have a given organic composition of capi¬
tal, or in different spheres with the same organic composition of
capital, that the amounts of profits are directly proportional to
the amounts of invested capitals. To say that the profits of unequal
capitals are proportional to their magnitudes would only mean
that capitals of equal magnitude yield equal profits, or that the
rate of profit is the same for all capitals, whatever their magnitude
and organic composition.

These statements hold good on the assumption that the commod¬
ities are sold at their values. The value of a commodity is equal
to the yalue of the constant capital contained in it, plus the value
of the variable capital reproduced in it, plus the increment — the
surplus-value produced — of this variable capital. At the same
rate of surplus-value, its quantity evidently depends on the quan¬
tity of the variable capital. The value of the product of an indivi¬
dual capital of 100 is, in one case, 90c+ 10T+10S=110; and in
the other, 10c-t-90T-l-90s=190. If the commodities go at their
values, the first product is sold at 110, of which 10 represent surplus-
value, or unpaid labour, and the second at 190, of which 90
represent surplus-value, or unpaid labour.

This is particularly important in comparing rates of profit in
different countries. Let us assume that the rate of surplus-value in
one European country is 100%, so that the labourer works half of
the working-day for himself and the other half for his employer.
Let us further assume that the rate of surplus-value in an Asian
country is 25%, so that the labourer works four-fifths of the
working-day for himself, and one-fifth for his employer. Let
84c+16v be the composition of the national capital in the
European country, and 16c-f84v in the Asian country, where
little machinery, etc., is used, and where a given quantity of
labour-power consumes relatively little raw material productively
in a given time. Then we have the following calculation :

In the European country the value of the product=84c+16v+
+168=116; rate of profit =^=16%.

DIFFERENT COMPOSITIONS OF CAPITALS

151

In the Asian country the value of the product =16c-f84T-f
-|-21s=121; rate of profit=^=21%.

The rate of profit in the Asian country is thus more than 25%
higher than in the European country, although the rate of surplus-
value in the former is one-fourth that of the latter. Men like Carey,
Bastiat, and tutti quanti, would arrive at the very opposite
conclusion.

By the way, different national rates of profit are mostly based on
different national rates of surplus-value. But in this chapter we
compare unequal rates of profit derived from the same rate of
surplus-value.

Aside from differences in the organic composition of capitals,
and therefore aside from the different masses of labour — and conse¬
quently, other circumstances remaining the same, from different
masses of surplus-labour set in motion by capitals of the same
magnitude in different spheres of production, there is yet another
source of inequality in rates of profit. This is the different period
of turnover of capital in different spheres of production. We have
seen in Chapter IV that, other conditions being equal, the rates of
profit of capitals of the same organic composition are inversely
proportional to their periods of turnover. We have also seen that
the same variable capital turned over in different periods of time
produces different quantities of annual surplus-value. The difference
in the periods of turnover is therefore another reason why capi¬
tals of equal magnitude in different spheres of production do not
produce equal profits in equal periods, and why, consequently,
the rates of profit in these different spheres differ.

As far as the ratio of the fixed and circulating capital in the
composition of capitals is concerned, however, it does not in itself
affect the rate of profit in the least. It can affect the rate of profit
only if in one case, this difference in composition coincides with
a different ratio of the variable and constant parts, so that the
difference in the rate of profit is due to this latter difference, and
not to the different ratio of fixed and circulating capital; and, in
the other case, if the difference in the ratio of the fixed and circu¬
lating parts of capital is responsible for a difference in the period
of turnover in which a certain profit is realised. If capitals are
divided into fixed and circulating capital in different proportions,
this will naturally always influence the period of turnover and
cause differences in it. But this does not imply that the period of
turnover, in which the same capitals realise certain profits, is
different. For instance, A may continually have to convert the greater

152

CONVERSION OF PROFIT INTO AVERAGE PROFIT

part of its product into raw materials, etc., while B may use the
same machinery, etc., for a longer time, and may need less raw
material, but both A and B, being occupied in production, always
have a part of their capital engaged, the one in raw materials, i.e.,
in circulating capital, and the other in machinery, etc., or in fixed
capital. A continually converts a portion of its capital from the
form of commodities into that of money, and the latter again into
the form of raw material, while B employs a portion of its capital
for a longer time as an instrument of labour without any such
conversions. If both of them employ the same amount of labour,
they will indeed sell quantities of products of unequal value in the
course of the year, but both quantities of products will contain
equal amounts of surplus-value, and their rates of profit, calculated
on the entire capital invested, will be the same, although their
composition of fixed and circulating capital, and their periods of
turnover, are different. Both capitals realise equal profits in equal
periods, although their periods of turnover are different.®1 The
difference in the period of turnover is in itself of no importance,
except so far as it affects the mass of surplus-labour appropriated
and realised by the same capital in a given time. If, therefore, a
different division into fixed and circulating capital does not neces¬
sarily imply a different period of turnover, which would in its turn
imply a different rate of profit, it is evident that if there is any such
difference in the rates of profit, it is not due to a different ratio of
fixed to circulating capital as such, but rather to the fact that this
different ratio indicates an inequality in the periods of turnover
affecting the rate of profit.

It follows, therefore, that the different composition of constant
capital in respect to its fixed and circulating portions in various
branches of production has in itself no bearing on the rate of profit,
since it is the ratio of variable to constant capital which decides

21 [It follows from Chapter IV that the above statement correctly applies
only when capitals A ana B are differently composed in respect to their
values, but that the percentages of their variable parts are proportionate to
their periods of turnover, i.e., inversely proportionate to their number
of turnovers. Let capital A have the following percentages of composition:
20c fixed +70c circulating, and thus 90c+10v=100. At a rate of surplus-
value of 100% the 10v produce 10s in one turnover, yielding a rate of profit
for one turnover = 10%. Let capital B=60c fixed +20c circulating, and
thus 80c + 20t = 100. The 20v produce 20a in one turnover at the above rate
of surplus- value, yielding a rate of profit for one turnover =20%, which is
double that of A. But if A is turned over twice per year, and B only once,
then 2 x 10 also make 20s per year, and the annual rate of profit is the same
for both, namely 20%.— F. £.]

DIFFERENT COMPOSITIONS OF CAPITALS

153

this question, while the value of the constant capital, and therefore
also its magnitude in relation to the variable is entirely unrelated
to the fixed or circulating nature of its components. Yet it may be
found — and this often leads to incorrect conclusions — that wher¬
ever fixed capital is considerably advanced this but expresses the
fact that production is on a large scale, so that constant capital
greatly outweighs the variable, or that the living labour-power it
employs is small compared to the mass of the means of production
which it operates.

We have thus demonstrated that different lines of industry have
different rates of profit, which correspond to differences in the
organic composition of their capitals and, within indicated limits,
also to their different periods of turnover; given the same time
of turnover, the law (as a general tendency) that profits are
related to one another as the magnitudes of the capitals, and that,
consequently, capitals of equal magnitude yield equal profits in
equal periods, applies only to capitals of the same organic composi¬
tion, even with the same rate of surplus-value. These statements
hold good on the assumption which has been the basis of all our
analyses so far, namely that the commodities are sold at their
values. There is no doubt, on the other hand, that aside from
unessential, incidental and mutually compensating distinctions,
differences in the average rate of profit in the various branches
of industry do not exist in reality, and could not exist without
abolishing the entire system of capitalist production. It would
seem, therefore, that here the theory of value is incompatible
with the actual process, incompatible with the real phenomena'
of production, and that for this reason any attempt to understand
these phenomena should be given up.

It follows from the first part of this volume that the cost-prices
of products in different spheres of production are equal if equal
portions of capital have been advanced for their production,
however different the organic composition of such capitals. The
distinction between variable and constant capital escapes the
capitalist in the cost-price. A commodity for whose production
he must advance £100 costs him just as much, whether he invests
90c+10», or 10c+90t. It costs him £100 in either case— no more
and no less. The cost-prices are the same for equal capitals in
different spheres, no matter how much the produced values and
surplus-values may differ. The equality of cost-prices is the basis
for competition among invested capitals whereby an average
profit is brought about.

CHAPTER IX

FORMATION OF A GENERAL RATE OF PROFIT
(AVERAGE RATE OF PROFIT)

AND TRANSFORMATION OF THE VALUES
OF COMMODITIES
INTO PRICES OF PRODUCTION

The organic composition of capital depends at any given time
on two circumstances: first, on the technical relation of labour-
power employed to the mass of the means of production employed;
secondly, on the price of these means of production. This composi¬
tion, as we have seen, must be examined on the basis of percentage
ratios. We express the organic composition of a certain capital
consisting */t of constant and */s °* variable capital, by the
formula 80a-f 20v. It is furthermore assumed in this comparison
that the rate of surplus-value is unchangeable. Let it be any rate
picked at random; say, 100%. The capital of 80c-(-20v then
produces a surplus-value of 20„, and this yields a rate of profit of
20% on the total capital. The magnitude of the actual value of
its product depends on the magnitude of the fixed part of the con¬
stant capital, and on the portion which passes from it through
wear and tear into the product. But since this circumstance has
absolutely no bearing on the rate of profit, and hence, in the
present analysis, we shall assume, for the sake of simplicity, that
the constant capital is everywhere uniformly and entirely trans¬
ferred to the annual product of the capitals. It is further assumed
that the capitals in the different spheres of production annually
realise the same quantities of surplus-value proportionate to the
magnitude of their variable parts. For the present, therefore,
we disregard the difference which may be produced in this respect
by variations in the duration of turnovers. This point will be
discussed later.

FORMATION OF GENERAL RATE OF PROFIT

155

Let us take five different spheres of production, and let the
capital in each have a different organic composition as follows:

Capitals

Rate of
Surplus-Value

Surplus-

Value

Value of
Product

Rate of
Profit

I. 80c + 20v

100%

120

20%

II. 70c + 30t

100%

130

30%

III. 60c + 40v

100%

140

40%

IV. 85c+15t

100%

115

15%

V. 95c + 5t

100%

105

Here, in different spheres of production with the same degree
of exploitation, we find considerably different rates of profit
corresponding to the different organic composition of these
capitals.

The sum total of the capitals invested in these five spheres of
production =500; the sum total of the surplus-value produced by
them = 110; the aggregate value of the commodities produced by
them =610. If we consider the 500 as a single capital, and capitals
I to V merely as its component parts (as, say, different depart¬
ments of a cotton mill, which has different ratios of constant to
variable capital in its carding, preparatory spinning, spinning,
and weaving shops, and in which the average ratio for the
factory as a whole has still to be calculated), the mean
composition of this capital of 500 would =390c-f-110T, or, in per
cent,=78c+22T. Should each of the capitals of 100 be re¬
garded as one-fifth of the total capital, its composition would equal
this average of 78c+22y; for every 100 there would be an average
surplus-value of 22; thus, the average rate of profit would=22%,
and, finally, the price of every fifth of the total product
produced by the 500 would=122. The product of each fifth of the
advanced total capital would then have to be sold at 122.

But to avoid entirely erroneous conclusions it must not be
assumed that all cost-prices = 100.

With 80c+20t and a rate of surplus-value=100%, the total
value of commodities produced by capital 1=100 would be
80c-f 20T+208=120, provided the entire constant capital went
into the annual product. Now, this may under certain circum¬
stances be the case in some spheres of production. But hardly
in cases where the proportion of c: v=4 : 1. We must, therefore,

156

CONVERSION OF PROFIT INTO AVERAGE PROFIT

remember in comparing the values produced by each 100 of the
different capitals, that they will differ in accordance with the
different composition of c as to its fixed and circulating parts,
and that, in turn, the fixed portions of each of the different
capitals depreciate slowly or rapidly as the case may be, thus trans¬
ferring unequal quantities of their value to the product in equal
periods of time. But this is immaterial to the rate of profit. No
matter whether the 80c give up a value of 80, or 50, or 5, to the
annual product, and the annual product consequently = 80c-f
+20T+20a=120, or 50c+20„+20s =90, or 5c+20,-f-208=45; in
all these cases the redundance of the product’s value over its
cost-price = 20, and in calculating the rate of profit these 20 are
related to the capital of 100 in all of them. The rate of profit
of capital I, therefore, is 20% in every case. To make this still
plainer, we let different portions of constant capital go into the
value of the product of the same five capitals in the following
table:

Capitals

Rate of
Surplus-
Value

Surplus-

Value

Rate

Profit

Used
up c

Value
of com¬
modities

Cost-

Price

I. 80c + 20y

100%

20%

II. 70c + 30t

100%

30%

111

III. 60c + 40v

100%

40%

131

IV. 85c + 15v

100%

15%

V. 95c + 5V

100%

390c + 110v

B |

—

Total

78c + 22v

—

22%

—

Average

If we now again consider capitals I to V as a single total capi¬
tal, we shall see that, in this case as well, the composition of the
sums of these five capitals=500=390c-t-110T, so that we get the
same average composition=78c-f-22T, and, similarly, the average
surplus-value remains 22. If we divide this surplus-value uni¬
formly among capitals I to V, we get the following commodity-
prices:

FORMATION OF GENERAL RATE OF PROFIT

157

Capitals

Surplus-

Value

Value of
Commodities

Cost-Price of
Commodities

Price of
Commodities

Rate of

Probt

Deviation of
Price from
Value

I. 80c + 20v

22%

II. 70c + 30v

111

103

22%

-8

III. 60c + 40v

131

113

22%

—18

IV. 85c + 15v

22%

+ 7

V. 95c + 5V

22%

+ 17

Taken together, the commodities are sold at 2+7+17=26
above, and 8+18=26 below their value, so that the deviations
of price from value balance out one another through the uniform
distribution of surplus-value, or through addition of the average
profit of 22 per 100 units of advanced capital to the respective
cost-prices of the commodities I to V. One portion of the com¬
modities is sold above its value in the same proportion in which
the other is sold below it. And it is only the sale of the commodi¬
ties at such prices that enables the rate of profit for capitals I
to V to be uniformly 22%, regardless of their different organic
composition. The prices which obtain as the average of the vari¬
ous rates of profit in the different spheres of production added to
the cost-prices of the different spheres of production, constitute
the prices of production. They have as their prerequisite the exist¬
ence of a general rate of profit, and this, again, presupposes that
the rates of profit in every individual sphere of production taken
by itself have previously been reduced to just as many average

rates. These particular rates of pro fit = ■— in every sphere of

production, and must, as occurs in Part I of this book, be deduced
out of the values of the commodities. Without such deduction
the general rate of profit (and consequently the price of produc¬
tion of commodities) remains a vague and senseless conception.
Hence, the price of production of a commodity is equal to its
cost-price plus the profit, allotted to it in per cent, in accordance
with the general rate of profit, or, in other words, to its cost-
price plus the average profit.

Owing to the different organic compositions of capitals invested
in different lines of production, and, hence, owing to the circum¬
stance that — depending on the different percentage which the vari-

158

CONVERSION OF PROFIT INTO AVERAGE PROFIT

able part makes up in a total capital of a given magnitude— capi¬
tals of equal magnitude put into motion very different quantities
of labour, they also appropriate very different quantities of
surplus-labour or produce very different quantities of surplus-value.
Accordingly, the rates of profit prevailing in the various branches
of production are originally very different. These different rates
of profit are equalised by competition to a single general rate of
profit, which is the average of all these different rates of profit.
The profit accruing in accordance with this general rate of profit
to any capital of a given magnitude, whatever its organic compo¬
sition, is called the average profit. The price of a commodity,
which is equal to its cost-price plus the share of the annual average
profit on the total capital invested (not merely consumed) in its
production that falls to it in accordance with the conditions of
turnover, is called its price of production. Take, for example,
a capital of 500, of which 100 is fixed capital, and let 10% of
this wear out during one turnover of the circulating capital of
400. Let the average profit for the period of turnover be 10%.
In that case the cost-price of the product created during this
turnover will be 10c for wear plus 400 (c+v) circulating capital=
= 410, and its price of production will be 410 cost-price plus
(10% profit on 500) 50 = 460.

Thus, although in selling their commodities the capitalists of
the various spheres of production recover the value of the capital
consumed in their production, they do not secure the surplus-
value, and consequently the profit, created in their own sphere by
the production of these commodities. What they secure is only
as much surplus-value, and hence profit, as falls, when uniformly
distributed, to the share of every aliquot part of the total social
capital from the total social surplus-value, or profit, produced
in a given time by the social capital in all spheres of production.
Every 100 of an invested capital, whatever its composition, draws
as much profit in a year, or any other period of time, as falls to
the share of every 100, the n’th part of the total capital, during
the same period. So far as profits are concerned, the various
capitalists are just so many stockholders in a stock company in
which the shares of profit are uniformly divided per 100, so that
profits differ in the case of the individual capitalists only in
accordance with the amount of capital invested by each in the
aggregate enterprise, i.e., according to his investment in social
production as a whole, according to the number of his shares.
Therefore, the portion of the price of commodities which replaces
the elements of capital consumed in the production of these com-

FORMATION OF GENERAL RATE OF PROFIT

159

modities, the portion, therefore, which will have to be used to
buy back these consumed capital-values, i.e., their cost-price,
depends entirely on the outlay of capital within the respective
spheres of production. But the other element of the price of com¬
modities, the profit added to this cost-price, does not depend
on the amount of profit produced in a given sphere of production
by a given capital in a given period of time. It depends on the
mass of profit which falls as an average for any given period to
each individual capital as an aliquot part of the total social
capital invested in social production.22

When a capitalist sells his commodities at their price of produc¬
tion, therefore, he recovers money in proportion to the value of
the capital consumed in their production and secures profit in
proportion to his advanced capital as the aliquot part in the total
social capital. His cost-prices are specific. But the profit added to
them is independent of his particular sphere of production, being
a simple average per 100 units of invested capital.

Let us assume that the five different investments I to V of the
foregoing illustration belong to one man. The quantity of variable
and constant capital consumed per 100 of the invested capital in
each of the departments I to V in the production of commodities
would be known, and this portion of the value of the commodities
I to V would, needless to say, make up a part of their price, since
at least this price is required to recover the advanced and con¬
sumed portions of the capital. These cost-prices would therefore
be different for each class of the commodities I to V, and would
as such be set differently by the owner. But as regards the different
quantities of surplus-value, or profit, produced by I to V, they
might easily be regarded by the capitalist as profit on his advanced
aggregate capital, so that each 100 units would get their definite
aliquot part. Hence, the cost-prices of the commodities produced
in the various departments I to V would be different; but that
portion of their selling price derived from the profit added per
100 capital would be the same for all these commodities. The
aggregate price of the commodities I to V would therefore equal
their aggregate value, i.e., the sum of the cost-prices I to V
plus the sum of the surplus-values, or profits, produced in I to
V. It would hence actually be the money-expression of the total
quantity of past and newly applied labour incorporated in
commodities I to V. And in the same way the sum of the prices
of production of all commodities produced in society — the totality

22 Cherbuliez [ Richesse ou pauvrete, Paris, 1841, pp. 71-72. — Ed.].

160

CONVERSION OF PROFIT INTO AVERAGE PROFIT

of all branches of production— is equal to the sum of their
values.

This statement seems to conflict with the fact that under capi¬
talist production the elements of productive capital are, as a rule,
bought on the market, and that for this reason their prices include
profit which has already been realised, hence, include the price of
production of the respective branch of industry together with the
profit contained in it, so that the profit of one branch of industry
goes into the cost-price of another. But if we place the sum of the
cost-prices of the commodities of an entire country on one side,
and the sum of its surplus-values, or profits, on the other, the cal¬
culation must evidently be right. For instance, take a certain
commodity A. Its cost-price may contain the profits of B,C,D, etc.,
just as the cost-prices of B,C,D, etc., may contain the profits of A.
Now, as we make our calculation the profit of A will not be includ¬
ed in its cost-price, nor will the profits of B,C,D, etc., be included
in theirs. Nobody ever includes his own profit in his cost-price.
If there are, therefore, n spheres of production, and if each makes
a profit amounting to p, then their aggregate cost-price=k— np.
Considering the calculation as a whole we see that since the profits
of one sphere of production pass into the cost-price of another, they
are therefore included in the calculation as constituents of the
total price of the end-product, and so cannot appear a second time
on the profit side. If any do appear on this side, however, then
only because the commodity in question is itself an ultimate
product, whose price of production does not pass into the cost-
price of some other commodity.

If the cost-price of a commodity includes a sum = p, which stands
for the profits of the producers of the means of production, and if a
profit = pJ is added to this cost-price, the aggregate profit P =
= P+Pi- The aggregate cost-price of the commodity, considered
without the profit portions, is then its own cost-price minus P.
Let this cost-price be k. Then, obviously, k+p=k + p+pj. In
dealing with surplus-values, we have seen in Book I (Kap. VII,
2, S. 211/203)* that the product of every capital may he so
treated, as though a part of it replaces only capital, while the
other part represents only surplus-value. In applying this approach
to the aggregate product of society, we must make some rectifica¬
tions. Looking upon society as a whole, the profit contained in,
say, the price of flax cannot appear twice — not both as a portion
of the linen price and as the profit of the flax.

* English edition: Ch. IX, 2, pp. 220-21. — Ed.

FORMATION OF GENERAL RATE OF PROFIT

161

There is no difference between surplus-value and profit, as long
as, e.g., A’s surplus-value passes into B’s constant capital. It is,
after all, quite immaterial to the value of the commodities,
whether the labour contained in them is paid or unpaid. This
merely shows that B pays for A’s surplus-value. A’s surplus-value
cannot be entered twice in the total calculation.

But the difference is this: Aside from the fact that the price of
a particular product, let us say that of capital B, differs from its
value because the surplus-value realised in B may be greater or
smaller than the profit added to the price of the products of B, the
same circumstance applies also to those commodities which form
the constant part of capital B, and indirectly also its variable
part, as the labourers’ necessities of life. So far as the constant por¬
tion is concerned, it is itself equal to the cost-price plus the
surplus-value, here therefore equal to cost-price plus profit, and this
profit may again be greater or smaller than the surplus-value for
which it stands. As for the variable capital, the average daily
wage is indeed always equal to the value produced in the number
of hours the labourer must work to produce the necessities of life.
But this number of hours is in its turn obscured by the deviation of
the prices of production of the necessities of life from their values.
However, this always resolves itself to one commodity receiving
too little of the surplus-value while another receives too much,
so that the deviations from the value which are embodied in the
prices of production compensate one another. Under capitalist
production, the general law acts as the prevailing tendency only
in a very complicated and approximate manner, as a never
ascertainable average of ceaseless fluctuations.

Since the general rate of profit is formed by taking the average
of the various rates of profit for each 100 of capital invested in a
definite period, e.g., a year, it follows that in it the difference
brought about by different periods of turnover of different capitals
is also effaced. But these differences have a decisive bearing on
the different rates of profit in the various spheres of production
whose average forms the general rate of profit.

In the preceding illustration concerning the formation of the
average rate of profit we assumed each capital in each sphere of
production = 100, and we did so to show the difference in the rates
of profit in per cent, and thus also the difference in the values of
commodities produced by equal amounts of capital. But it goes
without saying that the actual amounts of surplus-value produced
in each sphere of .production depend on the magnitude of the
invested capitals, since the composition of capital is given in each

162

CONVERSION OF PROFIT INTO AVERAGE PROFIT

sphere of production. Yet the actual rate of profit in any particular
sphere of production is not affected by the fact that the capital
invested is 100, or' m times 100, or xm times 100. The rate of
profit remains 10%, whether the total profit is 10 : 100, or
1,000 : 10,000.

However, since the rates of profit differ in the various spheres
of production, with very much different quantities of surplus-value,
or profit, being produced in them, depending on the proportion
of the variable to the total capital, it is evident that the average
profit per 100 of the social capital, and hence the average, or
general, rate of profit, will differ considerably in accordance with
the respective magnitudes of the capitals invested in the various
spheres. Let us take four capitals A,B,C,D. Let the rate of surplus-
value for all = 100%. Let the variable capital for each 100 of the
total be 25 in A, 40 in B, 15 in C, and 10 in D. Then each 100
of the total capital would yield a surplus-value, or profit, of 25 in
A, 40 in B, 15 in C, and 10 in D. This would total 90, and if these
four capitals are of the same magnitude, the average rate of profit
90

would then be — p or 22 1/2%.

Suppose, however, the total capitals are as follows: A — 200,
B = 300, C = 1,000, D=4,000. The profits produced would then
respectively=50, 120, 150, and 400. This makes a profit of 720,
and an average rate of profit of 131/11% for 5,500, the sum of the
four capitals.

The masses of the total value produced differ in accordance
with the magnitudes of the total capitals invested in A,B,C,D,
respectively. The formation of the average rate of profit is, there¬
fore, not merely a matter of obtaining the simple average of the
different rates of profit in the various spheres of production, but
rather one of the relative weight which these different rates of
profit have in forming this average. This, however, depends on
the relative magnitude of the capital invested in each particular
sphere, or on the aliquot part which the capital invested in each
particular sphere forms in the aggregate social capital. There
will naturally be a very great difference, depending on whether
a greater or smaller part of the total capital produces a higher or
lower rate of profit. And this, again, depends on how much capi¬
tal is invested in spheres, in which the variable capital is rela¬
tively small or large compared to the total capital. It is just like
the average interest obtained by a usurer who lends various
quantities of capital at different interest rates; for instance, at
4, 5, 6, 7%, etc. The average rate will depend entirely on how

FORMATION OF GENERAL RATE OF PROFIT

163

much of his capital he has loaned out at each of the different rates
of interest.

The general rate of profit is, therefore, determined by two
factors:

1) The organic composition of the capitals in the different spheres
of production, and thus, the different rates of profit in the
individual spheres.

2) The distribution of the total social capital in these different
spheres, and thus, the relative magnitude of the capital invested
in each particular sphere at the specific rate of profit prevailing
in it; i.e., the relative share of the total social capital absorbed by
each individual sphere of production.

In Books I and II we dealt only with the value of commodities.
On the one hand, the cost-price has now been singled out as a part
of this value, and, on the other, the price of production of
commodities has been developed as its converted form.

. Suppose the composition of the average social capital is 80c+
+20v, and the annual rate of surplus-value, s', is 100%. In that
case the average annual profit for a capital of 100 = 20, and the
general annual rate of profit=20%. Whatever the cost-price,
k, of the commodities annually produced by a capital of 100, their
price of production would then be k+20. In those spheres of pro¬
duction in which the composition of capital would = (80— x)c+
+(20+x)T, the actually produced surplus-value, or the annual
profit produced in that particular sphere, would be 20+x, that is,
greater than 20, and the value of the produced commodities =k+
+20+x, that is, greater than k+20, or greater than their price of
production. In those spheres, in which the composition of the capi¬
tal = (80+x)c+(20 — x)y, the annually produced surplus-value, or
profit, would=20— x, or less than 20, and consequently the value
of the commodities k+20 — x less than the price of production,
which=k+20. Aside from possible differences in the periods of
turnover, the price of production of the commodities would then
equal their value only in spheres, in which the composition would
happen to be 80c+20v.

The specific development of the social productivity of labour in
each particular sphere of production varies in degree, higher or
lower, depending on how large a quantity of means of production
are set in motion by a definite quantity of labour, hence in a
given working-day by a definite number of labourers, and, conse¬
quently, on how small a quantity of labour is required for a given
quantity of means of production. Such capitals as contain a larger
percentage of constant and a smaller percentage of variable capi-

164

CONVERSION OF PROFIT INTO AVERAGE PROFIT

tal than the average social capital are, therefore, called capitals
of higher composition, and, conversely, those capitals in which
the constant is relatively smaller, and the variable relatively
greater than in the average social capital, are called capitals of
lower composition. Finally, we call those capitals whose composi¬
tion coincides with the average, capitals of average composition.
Should the average social capital be composed in per cent of
80c+20v, then a capital of 90C+10T is higher, and a capital of 70c+
+30v lower than the social average. Generally speaking, if the
composition of the average social capital=mc4-nv, in which m
and n are constant magnitudes and m+n = 100, the formula
(m+x)c-f(n — x)T represents the higher composition, and (m — x)c+
-r(n-)-x)v the lower composition of an individual capital or group
of capitals. The way in which these capitals perform their func¬
tions after establishment of an average rate of profit and assuming
one turnover per year, is shown in the following tabulation, in
which I represents the average composition with an average rate
of profit of 20%.

I) 80c -(- 20v -|- 20s . Rate of profit = 20%.

Price of product = 120. Value=120.

II) 90c+10y+10a. Rate of profit=20%.

Price of product = 120. Value — 110.

Ill) 70c+30t+308. Rate of profit=20%.

Price of product = 120. Value = 130.

The value of the commodities produced by capital II would,
therefore, be smaller than their price of production, the price of
production of the commodities of III smaller than their value,
and only in the case of capital I in branches of production in which
the composition happens to coincide with the social average, would
value and price of production be equal. In applying these terms
to any particular cases note must, however, be taken whether a
deviation of the ratio between c and v is simply due to a change
in the value of the elements of constant capital, rather than to
a difference in the technical composition.

The foregoing statements have at any rate modified the original
assumption concerning the determination of the cost-price of
commodities. We had originally assumed that the cost-price of
a commodity equalled the value of the commodities consumed
in its production. But for the buyer the price of production of
a specific commodity is its cost-price, and may thus pass as cost-
price into the prices of other commodities. Since the price of pro¬
duction may differ from the value of a commodity, it follows that

FORMATION OF GENERAL RATE OF PROFIT

165

the cost-price of a commodity containing this price of production
of another commodity may also stand above or below that portion
of its total value derived from the value of the means of pro¬
duction consumed by it. It is necessary to remember this modi¬
fied significance of the cost-price, and to bear in mind that there is
always the possibility of an error if the cost-price of a commodity
in any particular sphere is identified with the value of the
means of production consumed by it. Our present analysis does
not necessitate a closer examination of this point. It remains
true, nevertheless, that the cost-price of a commodity is always
smaller than its value. For no matter how much the cost-price of
a commodity may differ from the value of the means of production
consumed by it, this past mistake is immaterial to the capitalist.
The cost-price of a particular commodity is a definite condition
which is given, and independent of the production of our capitalist,
while the result of his production is a commodity containing
surplus-value, therefore an excess of value over and above its
cost-price. For all other purposes, the statement that the cost-
price is smaller than the value of a commodity has now changed
practically into the statement that the cost-price is smaller than
the price of production. As concerns the total social capital, in
which the price of production is equal to the value, this statement
is identical with the former, namely that the cost-price is smaller
than the value. And while it is modified in the individual spheres
of production, the fundamental fact always remains that in the
case of the total social capital the cost-price of the commodities
produced by it is smaller than their value, or, in the case of the
total mass of social commodities, smaller than their price of pro¬
duction, which is identical with their value. The cost-price of
a commodity refers only to the quantity of paid labour contained
in it, while its value refers to all the paid and unpaid labour con¬
tained in it. The price of production refers to the sum of the paid
labour plus a certain quantity of unpaid labour determined for
any particular sphere of production by conditions over which
it has no control.

The formula that the price of production of a commodity=k+p,
i.e., equals its cost-price plus profit, is now more precisely defined
with p=kp' (p' being the general rate of profit). Hence the price
of production=k+kp'. If k=300 and p' = 15%, then the price of

production is k +kp' = 300+300 X or 345.

The price of production of the commodities in any particular
sphere may change in magnitude:

166

CONVERSION OF PROFIT INTO AVERAGE PROFIT

1) If the general rate of profit changes independently of this
particular sphere, while the value of the commodities remains
the same (the same quantities of congealed and living labour
being consumed in their production as before).

2) If there is a change of value, either in this particular sphere
in consequence of technical changes, or in consequence of a change
in the value of those commodities which form the elements of
its constant capital, while the general rate of profit remains
unchanged.

3) Finally, if a combination of the two aforementioned circum¬
stances takes place.

In spite of the great changes occurring continually, as we shall
see, in the actual rates of profit within the individual spheres of
production, any real change in the general rate of profit, unless
brought about by way of an exception by extraordinary economic
events, is the belated effect of a series of fluctuations extending
over very long periods, fluctuations which require much time
before consolidating and equalising one another to bring about
a change in the general rate of profit. In all shorter periods (quite
aside from fluctuations of market-prices), a change in the prices
of production is, therefore, always traceable prima facie to actual
changes in the value of commodities, i.e., to changes in the total
amount of labour-time required for their production. Mere changes
in the money-expression of the same values are, naturally, not
at all considered here.2®

On the other hand, it is evident that from the point of view of
the total social capital the value of the commodities produced
by it (or, expressed in money, their price)=value of constant
capital-)- value of variable capital-)- surplus-value. Assuming the
degree of labour exploitation to be constant, the rate of profit can¬
not change so long as the mass of surplus-value remains the same,
unless there is a change in either the value of the constant capital,
the value of the variable capital, or the value of both, so that C

changes, and thereby which represents the general rate of

profit. In each case, therefore, a change in the general rate of profit
implies a change in the value of commodities which form the
elements of the constant or variable capital, or of both.

Or, the general rate of profit may change, while the value of
the commodities remains the same, when the degree of labour
exploitation changes.

” Corbet [An Inquiry into the Cautet and Model of the Wealth of Indi¬
vidual!, London/1841.— Ed. ], p. 174.

FORMATION OF GENERAL RATE OF PROFIT

167

Or, if the degree of labour exploitation remains the same, the
general rate of profit may change through a change in the amount
of labour employed relative to the constant capital as a result
of technical changes in the labour-process. But such technical
changes must always show themselves in, and be attended by,
a change in the value of the commodities, whose production
would then require more or less labour than before.

We saw in Part I that surplus-value and profit are identical
from the standpoint of their mass. But the rate of profit is from the
very outset distinct from the rate of surplus-value, which appears at
first sight as merely a different form of calculating. But at the
same time this serves, also from the outset, to obscure and mystify
the actual origin of surplus-value, since the rate of profit can
rise or fall while the rate of surplus-value remains the same,
and vice versa, and since the capitalist is in practice solely
interested in the rate of profit. Yet there was difference of magni¬
tude only between the rate of surplus-value and the rate of profit
and not between the surplus-value itself and profit. Since in the
rate of profit the surplus-value is calculated in relation to the
total capital and the latter is taken as its standard of measurement,
the surplus-value itself appears to originate from the total capital,
uniformly derived from all its parts, so that the organic difference
between constant and variable capital is obliterated in the
conception of profit. Disguised as profit, surplus-value actually
denies its origin, loses its character, and becomes unrecognisable.
However, hitherto the distinction between profit and surplus-
value applied solely to a qualitative change, or change of form,
while there was no real difference of magnitude in this first stage of
the change between surplus-value and profit, but only between
the rate of profit and the rate of surplus-value.

But it is different, as soon as a general rate of profit, and there¬
by an average profit corresponding to the magnitude of invested
capital given in the various spheres of production, have been
established.

It is then only an accident if the surplus-value, and thus the
profit, actually produced in any particular sphere of production,
coincides with the profit contained in the selling price of a
commodity. As a rule, surplus-value and profit and not their rates
alone, are then different magnitudes. At a given degree of exploi¬
tation, the mass of surplus-value produced in a particular sphere
of production is then more important for the aggregate average
profit of social capital, and thus for the capitalist class in general,
than for the individual capitalist in any specific branch of produc-

168

CONVERSION OF PROFIT INTO AVERAGE PROFIT

tion. It is of importance to the latter24 only in so far as the quantity
of surplus-value produced in his branch helps to regulate the
average profit. But this is a process which occurs behind his back,
one he does not see, nor understand, and which indeed does not
interest him. The actual difference of magnitude between profit
and surplus-value — not merely between the rate of profit and
the rate of surplus-value — in the various spheres of production
now completely conceals the true nature and origin of profit not
only from the capitalist, who has a special interest in deceiving
himself on this score, but also from the labourer. The transfor¬
mation of values into prices of production serves to obscure the
basis for determining value itself. Finally, since the mere trans¬
formation of surplus-value into profit distinguishes the portion
of the value of a commodity forming the profit from the portion
forming its cost-price, it is natural that the conception of value
should elude the capitalist at this juncture; for he does not see
the total labour put into the commodity, but only that portion
of the total labour for which he has paid in the shape of means of
production, be they living or not, so that his profit appears to
him as something outside the immanent value of the commodity.
Now this idea is fully confirmed, fortified, and ossified in that,
from the standpoint of his particular sphere of production, the
profit added to the cost-price is not actually determined by the
limits of the formation of value within his own sphere, but
through completely outside influences.

The fact that this intrinsic connection is here revealed for the
first time; that up to the present time political economy, as we
shall see in the following and in Book IV, either forcibly abstract¬
ed itself from the distinctions between surplus-value and profit,
and their rates, so it could retain value determination as a basis,
or else abandoned this value determination and with it all vestiges
of a scientific approach, in order to cling to the differences that
strike the eye in this phenomenon — this confusion of the theorists
best illustrates the utter incapacity of the practical capitalist,
blinded by competition as he is, and incapable of penetrating its
phenomena, to recognise the inner essence and inner structure of
this process behind its outer appearance.

In fact, all the laws evolved in Part I concerning the rise and
fall of the rate of profit have the following two-fold meaning:

14 We naturally leave aside for the moment the possibility of securing
a temporary extra profit through wage reductions, monopoly prices, etc.
[f. E.\

FORMATION OF GENERAL RATE OF PROFIT

169

1) On the one hand, they are the laws of the general rate of profit.
In view of the many different causes which make the rate of profit
rise or fall one would think, after everything that has been said
and done, that the general rate of profit must change every day
But a trend in one sphere of production compensates for that in
another, their effects cross and paralyse one another. We shall
later examine to which side these fluctuations ultimately gravitate.
But they are slow. The suddenness, multiplicity, and different
duration of the fluctuations in the individual spheres of produc¬
tion make them compensate for one another in the order of their
succession in time, a fall in prices following a rise, and vice
versa, so that they remain limited to local, i.e., individual, spheres.
Finally, the various local fluctuations neutralise one another.
Withiri each individual sphere of production, there take place
changes, i.e., deviations from the general rate of profit, which
counterbalance one another in a definite time on the one hand,
and thus have no influence upon the general rate of profit, and
which, on the other, do not react upon it, because they are balanc¬
ed by other simultaneous local fluctuations. Since the general
rate of profit is not only determined by the average rate of profit
In each sphere, but also by the distribution of the total social
capital among the different individual spheres, and since this
distribution is continually changing, it becomes another constant
cause of change in the general rate of profit. But it is a cause of
change which mostly paralyses itself, owing to the uninterrupted*
and many-sided nature of this movement.

2) Within each sphere, there is some room for play for a longer
or shorter space of time, in which the rate of profit of this sphere
may fluctuate, before this fluctuation consolidates sufficiently
after rising or falling to gain time for influencing the general rate
of profit and therefore assuming more than local importance.
The laws of the rate of profit, as developed in Part I of this book,
likewise remain applicable within these limits of space and time.

The theoretical conception concerning the first transformation
of surplus-value into profit, that every part of a capital yields a
uniform profit,26 expresses a practical fact. Whatever the composi¬
tion of an industrial capital, whether it sets in motion one-
quarter of congealed labour and three-quarters of living labour,

* In the original “interrupted" [Unterbrochenheit ]. Corrected after
Marx's MS. — Ed.

26 Malthus [Principles of Political Economy, 2nd ed., London, 1836,
p. 268. — Ed. ].

170

CONVERSION OF PROFIT INTO AVERAGE PROFIT

or three-quarters of congealed labour and one-quarter of living
labour, whether in one case it absorbs three times as much surplus-
labour, or produces three times as much surplus-value than in
another — in either case it yields the same profit, given the same
degree of labour exploitation and leaving aside individual
differences, whkh, incidentally, disappear because we are dealing
in both cases with the average composition of the entire sphere
of production, 'lhe individual capitalist (or all the capitalists
in each individual sphere of production), whose outlook is limit¬
ed, rightly believes that his profit is not derived solely from the
labour employed by him, or in his line of production. This is
quite true, as far as his average profit is concerned. To what
extent this profit is due to the aggregate exploitation of labour
on the part of the total social capital, i.e., by all his capitalist
colleagues — this interrelation is a complete mystery to the indi¬
vidual capitalist; all the more so, since no bourgeois theorists,
the political economists, have so far revealed it. A saving of
labour — not only labour necessary to produce a certain product,
but also the number of employed labourers — and the employ¬
ment of more congealed labour (constant capital), appear to be
very sound operations from the economic standpoint and do not
seem to exert the least influence on the general rate of profit and
the average profit. How could living labour be the sole source
of profit, in view of the fact that a reduction in the quantity of
labour required for production appears not to exert any influence
on profit? Moreover, it even seems in certain circumstances to
be the nearest source of an increase of profits, at least for the
individual capitalist.

If in any particular sphere of production there is a rise or fall
of the portion of the cost-price which represents the value of con¬
stant capital, this portion comes from the circulation and, either
enlarged or reduced, passes from the very outset into the process
of production of the commodity. If, on the other hand, the same
number of labourers produces more or less in the same time, so
that the quantity of labour required for the production of a definite
quantity of commodities varies while the number of labourers
remains the same, that portion of the cost-price which repre¬
sents the value of the variable capital may remain the same, i.e.,
contribute the same amount to the cost-price of tho total product.
But every one of the individual commodities whose sum makes
up the total product, shares in more or less labour (paid and
therefore also unpaid), and shares consequently in the greater or
smaller outlay for this labour, i.e., a larger or smaller portion of

FORMATION OF GENERAL RATE OF PROFIT

171

the wage. The total wages paid by the capitalist remain the
same, but wages differ if calculated per piece of the commodity.
Thus, there is a change in this portion of the cost-price of the
commodity. But no matter whether the cost-price of the
individual commodity (or, perhaps, the cost-price of the sum of
commodities produced by a capital of a given magnitude) rises
or falls, be it due to such changes in its own value, or in that of its
elements, the average profit of, e.g., 10% remains 10%. Still,
10% of an individual commodity may repcesent very different
amounts, depending on the change of magnitude caused in the
cost-price of the individual commodity by such changes of value
as we have assumed.2*

So far as the variable capital is concerned — and this is most
important, because it is the source of surplus-value, and because
anything which conceals its relation to the accumulation of wealth
by the capitalist serves to mystify the entire system — matters
get cruder or appear to the capitalist in the following light: A
variable capital of £100 represents the weekly wage of, say, 100
labourers. If these 100 labourers weekly produce 200 pieces of
a commodity=200C, in a given working-time, then 1C — abstract¬
ed from that portion of its cost-price which is added by the con¬
stant capital, costs ^^=10 shillings, since £100= 200C. Now

suppose that a change occurs in the productiveness of labour.
Suppose it doubles, so that the same number of labourers now
produces twice 200C in the time which it previously took to pro¬
duce 200C. In that case (considering only that part of the cost-

£100

prioe which consists of wages) lC = -^-=5 shillings, since now

£100 = 400C. Should the productiveness decrease one-half, the

2ooc 200C

same labour would produce only -y and since £100= — y ,

£200

1C= 2qo-“£1- The changes in the labour-time required for the

production of the commodities, and hence the changes in their
value, thus appear in regard to the cost-price, and hence to the
price of production, as a different distribution of the same wage for
more or fewer commodities, depending on the greater or smaller
quantity of commodities produced in the same working-time
for the same wage. What the capitalist, and consequently also

11 Corbet [An Inquiry into the Causes and Modes of the Wealth of Indi¬
viduals, London, 1841, p. 20.— Ed. ].

172

CONVERSION OF PROFIT INTO AVERAGE PROFIT

the political economist, see is that the part of the paid labour
per piece of commodity changes with the productivity of labour,
and that the value of each piece also changes accordingly. What
they do not see is that the same applies to unpaid labour
contained in every piece of the commodity, and this is perceived so
much less since the average profit actually is only accidentally
determined by the unpaid labour absorbed in the sphere of the
individual capitalist. It is only in such crude and meaningless
form that we can glimpse that the value of commodities is
determined by the labour contained in them.

CHAPTER X

EQUALISATION OF THE GENERAL RATE OF PROFIT
THROUGH COMPETITION.

MARKET-PRICES AND MARKET- VALUES.

SURPLUS-PROFIT

The capital invested in some spheres of production has a mean,
or average, composition, that is, it has the same, or almost the
same composition as the average social capital.

In these spheres the price of production is exactly or almost
the same as the value of the produced commodity expressed in
money. If there were no other way of reaching a mathematical
limit, this would be the one. Competition so distributes the social
capital among the various spheres of production that the prices
of production in each sphere take shape according to the model
of the prices of production in these spheres of average composi¬
tion, i.e., they = k+kp' (cost-price plus the average rate of profit
multiplied by the cost-price). This average rate of profit, how¬
ever, is the percentage of profit in that sphere of average composi¬
tion in which profit, therefore, coincides with surplus-value.
Hence, the rate of profit is the same in all spheres of production,
for it is equalised on the basis of those average spheres of produc¬
tion which has the average composition of capital. Consequently,
the sum of the profits in all spheres of production must equal
the sum of the surplus-values, and the sum of the prices of produc¬
tion of the total social product equal the sum of its value. But it
is evident that the balance among spheres of production of differ¬
ent composition must tend to equalise them with the spheres of
average composition, be it exactly or only approximately the
same as the social average. Between the spheres more or less
approximating the average there is again a tendency toward equali¬
sation, seeking the ideal average, i.e., an average that does not
really exist, i.e., a tendency to take this ideal as a standard. In
this way the tendency necessarily prevails to make the prices

174

CONVERSION OF PROFIT INTO AVERAGE PROFIT

of production merely converted forms of value, or to turn profits
into mere portions of surplus-value. However, these are not
distributed in proportion to the surplus-value produced in each
special sphere of production, but rather in proportion to the mass
of capital employed in each sphere, so that equal masses of capi¬
tal, whatever their composition, receive equal aliquot shares of
the total surplus-value produced by the total social capital.

In the case of capitals of average, or approximately average,
composition, the price of production is thus the same or almost
the same as the value, and the profit the same as the surplus-
value produced by them. All other capitals, of whatever composi¬
tion, tend toward this average under pressure of competition.
But since the capitals of average composition are of the same,
or approximately the same, structure as the average social capi¬
tal, all capitals have the tendency, regardless of the surplus-value
produced by them, to realise the average profit, rather than their
own surplus-value in the price of their commodity, i.e., to realise
the prices of production.

On the other hand, it may be said that wherever an average
profit, and therefore a general rate of profit, are produced — no
matter by what means — such an average profit cannot be any¬
thing but the profit on the average social capital, whose sum is
equal to the sum of surplus-value. Moreover, the prices obtained
by adding this average profit to the cost-prices cannot be any¬
thing but the values transmuted into prices of production. Noth¬
ing would be altered if capitals in certain spheres of production
would not, for some reason, be subject to the process of equali¬
sation. The average profit would then be computed on that
portion of the social capital which enters the equalisation process.
It is evident that the average profit can be nothing but the total
mass of surplus-values allotted to the various quantities of capi¬
tal proportionally to their magnitudes in the different spheres
of production. It is the total realised unpaid labour, and this
total mass, like the paid, congealed or living, labour, obtains in
the total mass of commodities and money that falls to the
capitalists.

The really difficult question is this: how is this equalisation
of profits into a general rate of profit brought about, since it is
obviously a result rather than a point of departure?

To begin with, an estimate of the values of commodities, for
instance in terms of money, can obviously only be the result of
their exchange. If, therefore, we assume such an estimate, we must
regard it as the outcome of an actual exchange of commodity-

EQUALISATION OF GENERAL RATE OF PROFIT

175

value for commodity-value. But how does this exchange of com¬
modities at their real values come about?

Let us first assume that all commodities in the different
branches of production are sold at their real values. What would
then be the outcome? According to the- foregoing, very different
rates of profit would then reign in the various spheres of produc¬
tion. It is prima facie two entirely different matters whether
comm.odities are sold at their values (i.e., exchanged in propor¬
tion to the value contained in them at prices corresponding to
their value), or whether they are sold at such prices that their
sale yields equal profits for equal masses of the capitals advanced
for their respeqtive production.

The fact that capitals employing unequal amounts of living
labour produce unequal amounts of surplus-value, presupposes at
least to a certain extent that the degree of exploitation or the rate
of surplus-value are the same, or that any existing differences
in them are equalised by real or imaginary (conventional) grounds
of compensation. This would assume competition among labourers
and equalisation through their continual migration from one
sphere of production to another. Such a general rate of surplus-
value — viewed as a tendency, like all other economic laws — has
been assumed by us for the sake of theoretical simplification. But
in reality it is an actual premise of the capitalist mode of produc¬
tion, although it is more or less obstructed by practical frictions
causing more or less considerable local differences, such as the
settlement laws for farm-labourers in Britain. But in theory it is
assumed that the laws of capitalist production operate in their
pure form. In reality there exists only approximation; but, this
approximation is the greater, the more developed the capitalist
mode of production and the less it is adulterated and amalgamat¬
ed with survivals of former economic conditions.

The whole difficulty arises from the fact that commodities are
not exchanged simply as commodities , but as products of capitals,
which claim participation in the total amount of surplus-value,
proportional to their magnitude, or equal if they are of equal
magnitude. And this claim is to be satisfied by the total price
for commodities produced by a given capital in a certain space
of time. This total price is, however, only the sum of the prices
of the individual commodities produced by this capital.

The punctum saliens will be best brought out if we approach
the matter as follows: Suppose, the labourers themselves are in
possession of their respective means of production and exchange
their commodities with one another. In that case these commodi-

176 CONVERSION OF PROFIT INTO AVERAGE PROFIT

ties would not be products of capital. The value of the various
means of labour and raw materials would differ in accordance
with the technical nature of the labours performed in the differ¬
ent branches of production. Furthermore, aside from the Unequal
value of the means of production employed by them, they would
require different quantities of means of production for given quan¬
tities of labour, depending on whether a certain commodity can
be finished in one hour, another in one day, and so forth. Also
suppose the labourers work an equal average length of time, al¬
lowing for compensations that arise from the different labour
intensities, etc. In such a case, two labourers would, first, both
have replaced their outlays, the cost-prices of the consumed
means of production, in the commodities which make up the prod¬
uct of their day’s work. These outlays would differ, depending
on the technical nature of their labour. Secondly, both of them
would have created equal amounts of new value, namely the
working-day added by them to the means of production. This
would comprise their wages plus the surplus-value, the latter
representing surplus-labour over and above their necessary wants,
the product of which would however belong to them. To put it
the capitalist way, both of them receive the same wages plus
the same profit, or the same value, expressed, say, by the product
of a ten-hour working-day. But in the first place, the values of
their commodities would have to differ. In commodity I, for
instance, the portion of value corresponding to the consumed
means of production might be higher than in commodity II.
And, to introduce all possible differences, we might assume right
now that commodity I absorbs more living labour, and conse¬
quently requires more labour-time to be produced, than com¬
modity II. The values of commodities I and II are, therefore, very
different. So are the sums of the values of the commodities, which
represent the product of the labour performed by labourers I and
II in a given time. The rates of profit would also differ considera¬
bly for I and II if we take the rate of profit to be the proportion
of the surplus-value to the total value of the invested means of
production. The means of subsistence daily consumed by I and
II during production, which take the place of wages, here form
the part of the invested means of production ordinarily called
variable capital. But for equal working periods the surplus-
values would be the same for I and II, op, more precisely, since
I and II each receive the value of the product of a day’s work,
both of them receive equal values after the value of the invested
“constant” elements has been deducted, and one portion of these

EQUALISATION OF GENERAL RATE OF PROFIT

177

equal values may be regarded as a substitute for the means of
subsistence consumed in production, and the other as surplus-
value in excess of it If labourer I has greater expenses, they
are made good by a greater portion of the value of his commodity,
which replaces this “constant” part, and he therefore has to
reconvert a larger portion of the total value of his product into
the material elements of this constant part, while labourer II,
though receiving less for this, has so much less to reconvert.
In these circumstances, a difference in the rates of profit would
therefore be immaterial, just as it is immaterial to the wage-labourer
today what rate of profit may express the amount of surplus-value
filched from him, and just as in international commerce the differ¬
ence in the various national rates of profit is immaterial to
commodity exchange.

The exchange of commodities at their values, or approximately
at their values, thus requires a much lower stage than their ex¬
change at their prices of production, which requires a definite
level of capitalist development.

Whatever the manner in which the prices of various commodi¬
ties are first mutually fixed or regulated, their movements are
always governed by the law of value. If the labour-time required
for their production happens to shrink, prices fall; if it increases,
prices rise, provided other conditions remain the same.

Apart from the domination of prices and price movement by
the law of value, it is quite appropriate to regard the values of
commodities as not only theoretically but also historically prius
to the prices of production. This applies to conditions in which
the labourer owns his means of production, and this is the condi¬
tion of the land-owning farmer living off his own labour and the
craftsman, in the ancient as well as in the modern world. This
agrees also with the view27 we expressed previously,* that the
evolution of products into commodities arises through exchange
between different communities, not between the members of the
same community. It holds not only for this primitive condition,
but also for subsequent conditions, based on slavery and serfdom,
and for the guild organisation of handicrafts, so long as the means
of production involved in each branch of production can be
transferred from one sphere to another only with difficulty and

27 In 1865, this was merely Marx's “view”. Today, after the extensive
research ranging from Maurer to Morgan into the nature of primitive commu¬
nities, it is an accepted fact which is hardly anywhere denied. — F. E.

* English edition: Vol. I, p. 87.— Ed.

178 CONVERSION OF PROFIT INTO AVERAGE PROFIT

therefore the various spheres of production are related to one
another, within certain limits, as foreign countries or communist
communities.

For prices at which commodities are exchanged to approxi¬
mately correspond to their values, nothing more is necessary than
1) for the exchange of the various commodities to cease being
purely accidental or only occasional; 2) so far as direct exchange
of commodities is concerned, for these commodities to be produced
on both sides in approximately sufficient quantities to meet
mutual requirements, something learned from mutual experience in
trading and therefore a natural outgrowth of continued trading;
and 3) so far as selling is concerned, for no natural or artificial
monopoly to enable either of the contracting sides to sell commod¬
ities above their value or to compel them to undersell. By acci¬
dental monopoly we mean a monopoly which a buyer or seller
acquires through an accidental state of supply and demand.

The assumption that the commodities of the various spheres of
production are sold at their value merely implies, of course, that
their value is the centre of gravity around which their prices
fluctuate, and their continual rises and drops tend to equalise.
There is also the market-value — of which later — to be distinguished
from the individual value of particular commodities produced
by different producers. The individual value of some of these
commodities will be below their market-value (that is, less labour¬
time is required for their production than expressed in the market-
value) while that of others will exceed the market-value. On the
one hand, market-value is to be viewed as the average value of
commodities produced in a single sphere, and, on the other, as
the individual value of the commodities produced under average
conditions of their respective sphere and forming the bulk of the
products of that sphere. It is only in extraordinary combinations
that commodities produced under the worst, or the most favour¬
able, conditions regulate the market-value, which, in turn, forms
the centre of fluctuation for market-prices. The latter, however,
are the same for commodities of the same kind. If the ordinary
demand is satisfied by the supply of commodities of average value
hence of a value midway between the two extremes, then the com¬
modities whose individual value is below the market-value
realise an extra surplus-value, or surplus-profit, while those,
whose individual value exceeds the market-value, are unable to
realise a portion of the surplus-value contained in them.

It does no good to say that the sale of commodities produced
under the least favourable conditions proves that they are

EQUALISATION OF GENERAL RATE OF PROFIT

179

required to satisfy the demand. If in the assumed case the price
were higher than the average market-value, the demand would be
smaller.* At a certain price, a commodity occupies just so much
place on the market. This place remains the same in case of a price
change only if the higher price is accompanied by a drop in the
supply of the commodity, and a lower price by an increase of
supply. And if the demand is so great that it does not contract
when the price is regulated by the value of commodities produced
under the least favourable conditions, then these determine the
market-value. This is not possible unless demand is greater than
usual, or if supply drops below the usual level. Finally, if the
mass of the produced commodities exceeds the quantity disposed
of at average market-values, the commodities produced under
the most favourable conditions regulate the market-value. They
may, for example, be sold exactly or approximately at their
individual value, in which case the commodities produced under
the least favourable conditions may not even realise their cost-
price, while those produced under average conditions realise
only a portion of the surplus-value contained in them. What
has been said here of market-value applies to the price of produc¬
tion as soon as it takes the place of market-value. The price of
production is regulated in each sphere, and likewise regulated
by special circumstances. And this price of production is, in its
turn, the centre around which the daily market-prices fluctuate
and tend to equalise one another within definite periods. (See
Ricardo** on determining the price of production through those
working under the least favourable conditions.)

No matter how the prices are regulated, we arrive at the following:

1) The law of value dominates price movements with reduc¬
tions or increases in required labour-time making prices of produc¬
tion fall or rise. It is in this sense that Ricardo (who doubtlessly
realised that his prices of production deviated from the value
of commodities) says that “the inquiry to which I wish to draw
the reader’s attention relates to the effect of the variations in
the relative value of commodities, and not in their absolute
value”. ***

2) The average profit determining the prices of production

* In the original “greater” [grosser]. Corrected after Marx’s MS.— Ed.

** D. Ricardo, On the Principles of Political Economy, and Taxation,
Third edition, London, 1821, pp. 60-61.— Ed.

*•* D. Ricardo, Principles of Political Economy, Works, ed. by Mac-
Culloch, 1852, p. 15.— Ed.

180

CONVERSION OF PROFIT INTO AVERAGE PROFIT

must always be approximately equal to that quantity of surplus-
value which falls to the share of individual capital in its capacity
of an aliquot part of the total social capital. Suppose that tfie
general rate of profit, and therefore the average profit, are expressed
by money-value greater than the money-value of the actual
average surplus-value. So far as the capitalists are concerned, it
is then immaterial whether they reciprocally charge 10 or 15%
profit. Neither of these percentages covers more actual commodity-
value than the other, since the overcharge in money is mutual.
As for the labourer (the assumption being that he receives his
normal wage and the rise in the average profit does not therefore
imply an actual deduction from his wage, i.e., it expresses some¬
thing entirely different from the normal surplus-value of the
capitalist), the rise in commodity-prices caused by an increase of
the average profit must correspond to the rise of the money-
expression of the variable capital. Such a general nominal increase
in the rate of profit and the average profit above the limit provid¬
ed by the ratio of the actual surplus-value to the total invested
capital is not, in effect, possible without causing an increase in
wages, and also an increase in the prices of commodities forming
the constant capital. The reverse is true in case of a reduction.
Since the total value of the commodities regulates the total
surplus-value, and this in turn regulates the level of average profit
and thereby the general rate of profit— as a general law or a law gov¬
erning fluctuations— it follows that the law of value regulates the
prices of production.

What competition, first in a single sphere, achieves is a single
market-value and market-price derived from the various indi¬
vidual values of commodities. And it is competition of capitals
in different spheres, which first brings out the price of production
equalising the rates of profit in the different spheres. The latter
process requires a higher development of capitalist production
than the previous one.

For commodities of the same sphere of production, the same
kind, and approximately the same quality, to be sold at their
values, the following two requirements are necessary:

First, the different individual values must be equalised at
one social value, the above-named market-value, and this implies
competition among producers of the same kind of c'ommodities
and, likewise, the existence of a common market in which they
offer their articles for sale. For the market-price of identical com¬
modities, each, however, produced under different individual
circumstances, to correspond to the market-value and not to

EQUALISATION OF GENERAL RATE OF PROFIT

181

deviate from it either by rising above or falling below it, it is
necessary that the pressure exerted by different sellers upon one
another be sufficient to bring enough commodities to market
to fill the social requirements, i.e., a quantity for which society
is capable of paying the market-value. Should the mass of products
exceed this demand, the commodities would have to be sold
below their market-value; and conversely, above their market-
value if the mass of products were not large enough to meet the
demand, or, what amounts to the same, if the pressure of compe¬
tition among sellers were not strong enough to bring this mass
of products to market. Should the market-value change, this
would also entail a change in the conditions on which the total
mass of commodities could be sold. Should the market-value
fall, this would entail a rise in the average social demand (this
always taken to mean the effective demand), which could, within
certain limits, absorb larger masses of commodities. Should
the market-value rise, this would entail a drop in the social
demand, and a smaller mass of commodities would be absorbed.
Hence, if supply and demand regulate the market-price, or rather
the deviations of the market-price from the market-value, then,
in turn, the market-value regulates the ratio of supply to demand,
or the centre round which fluctuations of supply and demand
cause market-prices to oscillate.

Looking closer, we find that the conditions applicable to the
value of an individual commodity are here reproduced as condi¬
tions governing the value of the aggregate of a certain kind of
commodity. Capitalist production is mass production from the
very outset. But even in other, less developed, modes of produc¬
tion that which is produced in relatively small quantities as a
common product by small-scale, even if numerous, producers,
is concentrated in large quantities— at least in the case of the vital
commodities — in the hands of relatively few merchants. The
latter accumulate them and sell them as the common product of
an entire branch of production, or of a more or less considerable
contingent of it.

It should be here noted in passing that the “social demand” ,
i.e., the factor which regulates the principle of demand, is essen¬
tially subject to the mutual relationship of the different classes and
their respective economic position, notably therefore to, firstly,
the ratio of total surplus-value to wages, and, secondly, to the
relation of the various parts into which surplus-value is split up
(profit, interest, ground-rent, taxes, etc.). And this thus again
shows how absolutely nothing can be explained by the relation

7 — 2494

182

CONVERSION OF PROFIT INTO AVERAGE PROFIT

of supply to demand before ascertaining the basis on which this
relation rests.

Although both commodity and money represent a unity of ex¬
change-value and use-value, we have already seen (Buch I, Kap. I,
3* *•) that in buying and selling both of these functions are polarised
at the two extremes, the commodity (seller) representing the
use-value, and the money (buyer) representing the exchange-value.
One of the first premises of selling was that a commodity should
have use-value and should therefore satisfy a social need. The
other premise was that the quantity of labour contained in the
commodity should represent socially necessary labour, i.e., its
individual value (and, what amounts to the same under the
present assumption, its selling price) should coincide with its
social value.28

Let us apply this to the mass of commodities available in the
market, which represents the product of a whole sphere.

The matter will be most readily pictured by regarding this
whole mass of commodities, produced by one branch of industry,
as one commodity, and the sum of the prices of the many identical
commodities as one price. Then, whatever has been said of a single
commodity applies literally to the mass of commodities of an
entire branch of production available in the market. The require¬
ment that the individual value of a commodity should correspond
to its social value is now realised, or further determined, in that
the mass contains social labour necessary for its production, and
that the value of this mass is equal to its market-value.

Now suppose that the bulk of these commodities is produced un¬
der approximately similar normal social conditions, so that this
value is at the same time the individual value of the individual
commodities which make up this mass. If a relatively small por¬
tion of these commodities may now have been produced below,
and another above, these conditions, so that the individual value
of one portion is greater, and that of the other smaller, than
the average value of the bulk of the commodities, but in such
proportions that these extremes balance one another, so that the
average value of the commodities at these extremes is equal to
the value of commodities in the centre, then the market-value is
determined by the value of the commodities produced under
average conditions. 29 The value of the entire mass of commodities

* English edition: Ch. I, 3.— Ed.

28 Karl Marx, Zur Krilik dcr politischen Oekonomie, Berlin, 1859.

*• Ibid.

EQUALISATION OF GENERAL RATE OF PROFIT

183

is equal to the actual sum of the values of all individual commodi¬
ties taken together, whether produced under average conditions,
or under conditions above or below the average. In that case, the
market-value, or social value, of the mass of commodities — the
necessary labour-time contained in them — is determined by the
value of the preponderant mean mass.

Suppose, on the contrary, that the total mass of the commodi¬
ties in question brought to market remains the same, while the
value of the commodities produced under less favourable condi¬
tions fails to balance out the value of commodities produced under
more favourable conditions, so that the part of the mass produced
under less favourable conditions forms a relatively weighty
quantity as compared with the average mass and with the other
extreme. In that case, the mass produced under less favourable
conditions regulates the market, or social, value.

Suppose, finally, that the mass of commodities produced under
better than average conditions considerably exceeds that produced
under worse conditions, and is large even compared with that
produced under average conditions. In that case, the part produced
under the most favourable conditions determines the market-
value. We ignore here the overstocked market, in which the part
produced under most favourable conditions always regulates the
market-price. We are not dealing here with the market-price,
in so far as it differs from the market-value, but with the various
determinations of the market-value itself.30

30 The controversy between Storch and Ricardo with regard to ground-
rent (a controversy pertaining only to the subject; in fact, the two opponents
pay no attention to one another), whether the market- value (or ratner what
they call market price and price of production respectively) was regulated
by the commodities produced under unfavourable conditions (Ricardo)
[On the Principles of Political Economy , and Taxation, Third edition, Lon¬
don, 1821, pp. 60-61. — Ed. ], or by those produced under favourable condi¬
tions (Storch) [Cours d' economic politique, ou exposition des principes, qui
determinent la prosperity des nations, tome II, St.-Petersbourg, T815,
pp. 78-79. — Ed. 1, resolves itself in the final analysis in that both are right
and both wrong, and that both of them have failed to consider the average
case. Compare Corbet [An Inquiry into the Causes and Modes of the Wealtk
of Individuals, London, 1841, pp. 42-44. — Ed. ] on the cases in which the
price is regulated by commodities produced under the most favourable
conditions. — “It is not meant to be asserted by him” (Ricardo) “that
two particular lots of two different articles, as a hat and a pair of
shoes, exchange with one another when those two particular lots were
produced by equal quantities of labour. By 'commodity' we must here un¬
derstand the 'description of commodity', not a particular individual hat,
pair of shoes, etc. The whole labour which produces all the hats in England
is to be considered, to this purpose, as divided among all the hats. This

184

CONVERSION OF PROFIT INTO AVERAGE PROFIT

In fact, strictly speaking (which, of course, occurs in reality
only in approximation and with a thousand modifications) the
market-value of the entire mass, regulated as it is by the average
values, is in case I equal to the sum of their individual values;
although in the case of the commodities produced at the extremes,
this value is represented as an average value which is forced upon
them. Those who produce at the worst extreme must then sell
their commodities below the individual value; those producing
at the best extreme sell them above it.

In case II the individual lots of commodity-values produced
at the two extremes do not balance one another. Rather, the lot
produced under the worse conditions decides the issue. Strictly
speaking, the average price, or the market-value, of each indi¬
vidual commodity, or each aliquot part of the total mass, would
now be determined by the total value of the mass as obtained by
adding up the values of the commodities produced under different
conditions, and in accordance with the aliquot part of this total
value falling to the share of each individual commodity. The
market-value thus obtained would exceed the individual value
not only of the commodities belonging to the favourable extreme,
but also of those belonging to the average lot. Yet it would still
be below the individual value of those commodities produced at
the unfavourable extreme. How close the market-value approaches,
or finally coincides with, the latter would depend entirely on the
volume occupied by commodities produced at the unfavourable
extreme of the commodity sphere in question. If demand is
only slightly greater than supply, the individual value of the
unfavourably produced commodities regulates the market-price.

Finally, if the lot of commodities produced at the favourable
extreme occupies greater place than the other extreme, and also
than the average lot, as it does in case III, then the market-value
falls below the average value. The average value, computed by
adding the sums of values at the two extremes and at the middle,
stands here below the value of the middle, which it approaches,
or vice versa, depending on the relative place occupied by the
favourable extreme. Should demand be weaker than supply, the
favourably situated part, whatever its size, makes room for itself
forcibly by paring its price down to its individual value The
market-value cannot ever coincide with this individual value of

seems to me not to have been expressed at first, and in the general statements
of this doctrine." ( Observations on Certain Verbal Disputes in Political
Economy, etc., London, 1821, pp. 53-54.)

EQUALISATION OF GENERAL RATE OF PROFIT lg5

the commodities produced under the most favourable condi¬
tions, except when supply far exceeds demand.

This mode of determining market-values, which we have here
outlined abstractly, is promoted in the real market by competi¬
tion among the buyers, provided the demand is large enough
to absorb the mass of commodities at values so fixed. And this
brings us to the other point.

Second, to say that a commodity has a use-value is merely to
say that it satisfies some social want. So long as we dealt with
individual commodities only, we could assume that there was a
need for a particular commodity — its quantity already implied
by its price without inquiring further into the quantity required
to satisfy this want. This quantity is, however, of essential im¬
portance, as soon as the product of an entire branch of production
is placed on one side, and the social need for it on the other. It
then becomes necessary to consider the extent, i.e., the amount
of this social want.

In the foregoing determinations of market-value it was assumed
that the mass of the produced commodities is given, i.e., remains
the same, and that there is a change only in the proportions of
its constituent elements, which are produced under different
conditions, and that, hence, the market-value of the same mass of
commodities is differently regulated. Suppose, this mass corre¬
sponds in size to the usual supply, leaving aside the possibility
that a portion of the produced commodities may be temporarily
withdrawn from the market. Should demand for this mass now
also remain the same, this commodity will be sold at its market-
value, no matter which of the three aforementioned cases regu¬
lates this market-value. This mass of commodities does not
merely satisfy a need, but satisfies it to its full social extent.
Should their quantity be smaller or greater, however, than the
demand for them, there will be deviations of the market-price
from the market-value. And the first deviation is that if the
supply is too small, the market-value is always regulated by the
commodities produced under the least favourable circumstances
and, if the supply is too large, always by the commodities produced
under the most favourable conditions; that therefore it is one
of the extremes which determines the market-value, in spite of
the fact that in accordance with the mere proportion of the com¬
modity masses produced under different conditions, a different
result should obtain. If the difference between demand and
the available quantity of the product is more considerable,
the market-price will likewise be considerably above or below

186 CONVERSION OF PROFIT INTO AVERAGE PROFIT

the market-value. Now, the difference between the quantity of
the produced commodities and that quantity of them at which
they are sold at market-value may be due to two reasons. Either
the quantity itself changes, becoming too small or too large, so
that reproduction would have taken place on a different scale
than that which regulated the given market-value. In that case
the supply changed, although demand remained the same, and
there was, therefore, relative over-production or under-produc¬
tion. Or else reproduction, and thus supply, remained the same,
while demand shrank or increased, which may be due to several
reasons. Although the absolute magnitude of the supply was the
same, its relative magnitude, its magnitude relative to, or
measured by, the demand, had changed. The effect is the same as
in the first case, but in the reverse direction. Finally, if changes
take place on both sides, but either in reverse directions, or,
if in the same direction, then not to the same extent, if therefore
there are changes on both sides, but these alter the former propor¬
tion between the two sides, then the final result must always
lead to one of the two above-mentioned cases.

The real difficulty in formulating the general definition of
supply and demand is that it seems to take on the appearance of a
tautology. First consider the supply— the product available in
the market, or that which can be delivered to it. To avoid dwelling
upon useless detail, we shall here consider only the mass annually
reproduced in every given branch of production and ignore the
greater or lesser faculty possessed by the different commodities to
be withdrawn from the market and stored away for consumption,
say, until next year. This annual reproduction is expressed by a
certain quantity — in weight or numbers — depending on whether
this mass of commodities is measured in discrete elements or con¬
tinuously. They are not only use-values satisfying human wants,
but these use-values are available in the market in definite quanti¬
ties. Secondly, however, this quantity of commodities has a spe¬
cific market-value, which may be expressed by a multiple of the
market-value of the commodity, or of its measure, which serves
as unit. Thus, there is no necessary connection between the quanti¬
tative volume of the commodities in the market and their market-
value, since, for instance, many commodities have a specifically
high value, and others a specifically low value, so that a given
sum of values may be represented by a very large quantity of one
commodity, and a very small quantity of another. There is only
the following connection between the quantity of the articles
available in the market and the market-value of these articles: On

EQUALISATION OF GENERAL RATE OF PROFIT

187

a given basis of labour productivity the production of a certain
quantity of articles in every particular sphere of production
requires a definite quantity of social labour-time; although this
proportion varies in different spheres of production and has no
inner relation to the usefulness of these articles or the special
nature of their use-values. Assuming all other circumstances to be
equal, and a certain quantity a of some commodity to cost b labour¬
time, a quantity na of the same commodity will cost nb labour-
time. Further, if society wants to satisfy some want and have an
article produced for this purpose, it must pay for it. Indeed, since
commodity-production necessitates a division of labour, society
pays for this article by devoting a portion of the available labour-
time to its production. Therefore, society buys it with a definite
quantity of its disposable labour-time. That part of society which
through the division of labour happens to employ its labour in
producing this particular article, must receive an equivalent in
social labour incorporated in articles which satisfy its own wants.
However, there exists an accidental rather than a necessary con¬
nection between the total amount of social labour applied to a
social article, i.e., between the aliquot part of society’s total
labour-power allocated to producing this article, or between the
volume which the production of this article occupies in total pro¬
duction, on the one hand, and the volume whereby society seeks
to satisfy the want gratified by the article in question, on the
other. Every individual article, or every definite quantity of
a commodity may, indeed, contain no more than the social labour
required for its production, and from this point of view the
market-value of this entire commodity represents only necessary
labour, but if this commodity has been produced in excess of the
existing social needs, then so much of the social labour-time is
squandered and the mass of the commodity comes to represent
a much smaller quantity of social labour in the market than is
actually incorporated in it. (It is only where production is under
the actual, predetermining control of society that the latter
establishes a relation between the volume of social labour-time
applied in producing definite articles, and the volume of the
social want to be satisfied by these articles.) For this reason,
these commodities must be sold below their market-value, and a
portion of them may even be altogether unsaleable. The reverse
applies if the quantity of social labour employed in the production
of a certain kind of commodity is too small to meet the social
demand for that commodity. But if the quantity of social labour
expended in the production of a certain article corresponds to

188

CONVERSION OF PROFIT INTO AVERAGE PROFIT

the social demand for that article, so that the produced quantity
corresponds to the usual scale of reproduction and the demand
remains unchanged, then the article is sold at its market-value.
The exchange, or sale, of commodities at their value is the ration¬
al state of affairs, i.e., the natural law of their equilibrium. It
is this law that explains the deviations, and not vice versa, the
deviations that explain the law.

Now let us look at the other side— the demand.

Commodities are bought either as means of production or means
of subsistence to enter productive or individual consumption. It
does not alter matters that some commodities may serve both pur¬
poses. There is, then, a demand for them on the part of producers
(here capitalists, since we have assumed that means of production
have been transformed into capital) and of consumers. Both ap¬
pear at first sight to presuppose a given quantity of social want
on the side of demand, corresponding on the other side to a defi¬
nite quantity of social output in the various lines of production.
If the cotton industry is to accomplish its annual reproduction
on a given scale, it must have the usual supply of cotton, and,
other circumstances remaining the same, an additional amount
of cotton corresponding to the annual extension of reproduction
caused by the accumulation of capital. This is equally true with
regard to means of subsistence. The working-class must find at
least the same quantity of necessities on hand if it is to continue
living in its accustomed average way, although they may be more
or less differently distributed among the different kinds of com¬
modities. Moreover, there must be an additional quantity to allow
for the annual increase of population. The same, with more or less
modification, applies to other classes.

It would seem, then, that there is on the side of demand a cer¬
tain magnitude of definite social wants which require for their
satisfaction a definite quantity of a commodity on the market.
But quantitatively, the definite social wants are very elastic and
changing. Their fixedness is only apparent. If the means of sub¬
sistence were cheaper, or money-wages higher, the labourers
would buy more of them, and a greater “social need” would arise
for them, leaving aside the paupers, etc., whose “demand” is
even below the narrowest limits of their physical wants. On the
other hand, if cotton were cheaper, for example, the capitalists’
demand for it would increase, more additional capital would
be thrown into the cotton industry, etc. We must never forget
that the demand for productive consumption is, under our
assumption, a demand of the capitalist, whose essential purpose

EQUALISATION OF GENERAL RATE OF PROFIT

189

is the production of surplus-value, so that he produces a par¬
ticular commodity to this sole end. Still, this does not hinder
the capitalist, so long as he appears in the market as a buyer of,
say, cotton, from representing the need for this cotton, just as
it is immaterial to the seller of cotton whether the buyer converts
it into shirting or gun-cotton, or whether he intends to turn it
into wads for his own, and the world’s, ears. But this does exert
a considerable influence on the kind of buyer the capitalist is.
His demand for cotton is substantially modified by the fact that
it disguises his real need for making profit. The limits within
which the need for commodities in the market , the demand,
differs quantitatively from the actual social need, naturally vary
considerably for different commodities; what I mean is the differ¬
ence between the demanded quantity of commodities and the
quantity which would have been in demand at other money-prices
or other money or living conditions of the buyers.

Nothing is easier than to realise the inconsistencies of demand
and supply, and the resulting deviation of market-prices from
market-values. The real difficulty consists in determining what is
meant by the equation of supply and demand.

Supply and demand coincide when their mutual proportions
are such that the mass of commodities of a definite line of produc¬
tion can be sold at their market-value, neither above nor below
it. That is the first thing we hear.

The second is this: If commodities are sold at their market-
values, supply and demand coincide.

If supply equals demand, they cease to act, and for this very
reason commodities are sold at their market-values. Whenever
two forces operate equally in opposite directions, they balance
one another, exert no outside influence, and any phenomena taking
place in these circumstances must be explained by causes other
than the effect of these two forces. If supply and demand balance
one another, they cease to explain anything, do not affect market-
values, and therefore leave us so much more in the dark about the
reasons why the market-value is expressed in just this sum of
money and no other. It is evident that the real inner laws of capi¬
talist production canno-t be explained by the interaction of supply
and demand (quite aside from a deeper analysis of these two
social motive forces, which would be out of place here), because
these laws cannot be observed in their pure state, until supply
and demand cease to act, i.e., are equated. In reality, supply and
demand never coincide, or, if they do, it is by mere accident,
hence scientifically=0, and to be regarded as not having occurred.

190

CONVERSION OF PROFIT INTO AVERAGE PROFIT

But political economy assumes that supply and demand coincide
with one another. Why? To be able to study phenomena in their
fundamental relations, in the form corresponding to their concep¬
tion, that is, is to study them independent of the appearances
caused by the movement of supply and demand. The other reason
is to find the actual tendencies of their movements and to some
extent to record them. Since the inconsistencies are of an antago¬
nistic nature, and since they continually succeed one another,
they balance out one another through their opposing movements,
and their mutual contradiction. Since, therefore, supply and
demand never equal one another in any given case, their differences
follow one another in such a way — and the result of a deviation
in one direction is that it calls forth a deviation in the opposite
direction— that supply and demand are always equated when
the whole is viewed over a certain period, but only as an average
of past movements, and only as the continuous movement of their
contradiction. In this way, the market-prices which have deviated
from the market-values adjust themselves, as viewed from the
standpoint of their average number, to equal the market-values,
in that deviations from the latter cancel each other as plus and
minus. And this average is not merely of theoretical, but also
of practical importance to capital, whose investment is calculat¬
ed on the fluctuations and compensations of a more or less fixed
period.

On the one hand, the relation of demand and supply, therefore,
only explains the deviations of market-prices from market-values.
On the other, it explains the tendency to eliminate these devia¬
tions, i.e., to eliminate the effect of the relation of demand and
supply. (Such exceptions as commodities which have a price with¬
out having a value are not considered here.) Supply and demand
may eliminate the effect caused by their difference in many differ¬
ent ways. For instance, if the 'demand, and consequently the
market-price, fall, capital may be withdrawn, thus causing supply
to shrink. It may also be that the market-value itself shrinks and
balances with the market-price as a result of inventions which
reduce the necessary labour-time. Conversely, if the demand
increases, and consequently the market-price rises above the mar¬
ket-value, this may lead to too much capital flowing into this line
of production and production may swell to such an extent that the
market-price will even fall below the market-value. Or, it may
lead to a price increase, which cuts the demand. In some lines of
production it may also bring about a rise in the market-value
itself for a shorter or longer period, with a portion of the desired

EQUALISATION OF GENERAL RATE OF PROFIT

191

products having to be produced under worse conditions during
this period.

Supply and demand determine the market-price, and so does
the market-price, and the market-value in the further analysis,
determine supply and demand. This is obvious in the case of de¬
mand, since it moves in a direction opposite to prices, swelling
when prices fall, and vice versa. But this is also true of supply.
Because the prices of means of production incorporated in the offered
commodities determine the demand for these means of produc¬
tion, and thus the supply of commodities whose supply embraces
the demand for these means of production. The prices of cotton
are determinants in the supply of cotton goods.

To this confusion — determining prices through demand and
supply, and, at the same time, determining supply and demand
through prices— must be added that demand determines supply,
just as supply determines demand, and production determines
the market, as well as the market determines production.31

,l The following subtility is sheer nonsense: “Where the quantity of
wages, capital, and land, required to produce an article, are become different
from what they were, that which Adam Smith calls the natural price of it,
is also different, and that price, which was previously its natural price,
becomes, with reference to this alteration, its market-price; because, though
neither the supply, nor the quantity wanted, may have been changed " —
both of them change here, just because the market-value, or, in the case
of Adam Smith, the price of production, changes in consequence of a change
of value — “that supply is not now exactly enough for those persons who are
able and willing to pay what is now the cost of production, but is either
greater or less than that; so that the proportion between the supply and what
is with reference to the new cost of production the effectual demand, is differ¬
ent from what it was. An alteration in the rate of supply will then take place,
if there is no obstacle in the way of it, and at last bring the commodity
to its new natural price. It may then seem good to some persons to say that,
as the commodity gets to its natural price by an alteration in its supply,
the natural price is as much owing to one proportion between the demand
and supply, as the market-price is to another;, and consequently, that the
natural price, just as much as the market-price, depends on the proportion
that demand and supply bear to each other. ” (“The great principle of demand
and supply is called into action to determine what A. Smith calls natural
prices as well as market-prices. Malthus.) [Principles of Political Econo¬
my, London, 1820, p. 75. — Ed. ] ( Observations on Certain Verbal Dis¬
putes, etc., London, 1821, pp. 60-61.) The good man does not grasp the fact
that it is precisely the change in the cost of production, and thus in the value,
which caused a change in the demand, in the present case, and thus in the
proportion between demand and supply, and that this change in the demand
may bring about a change in the supply. This would prove just the reverse
of what our good thinker wants to prove. It would prove that the change in
the cost of production is by no means due to the proportion of demand and
supply, but rather regulates this proportion.

192

CONVERSION OF PROFIT INTO AVERAGE PROFIT

Even the ordinary economist (see footnote) agrees that the pro¬
portion between supply and demand may vary in consequence of
a change in the market-value of commodities, without a change
being brought about in demand or supply by extraneous circum¬
stances. Even he must admit that, whatever the market-value,
supply and demand must coincide in order for it to be established.
In other words, the ratio of supply to demand does not explain
the market-value, but cbnversely, the latter rather explains the
fluctuations of supply and demand. The author of the Observa¬
tions continues after the passage quoted in the footnote: “This
proportion” (between demand and supply), “however, if we still
mean by ‘demand’ and ’natural price’, what we meant just now,
when referring to Adam Smith, must always be a proportion of
equality; for it is only when the supply is equal to the effectual
demand, that is, to that demand which will neither more nor less
than pay the natural price, that the natural price is in fact paid;
consequently, there may be two very different natural prices, at
different times, for the same commodity, and yet the proportion,
which the supply bears to the demand, be in both cases the same,
namely, the proportion of equality. ” It is admitted, then, that
with two different natural prices of the same commodity, at
different times, demand and supply are always able to, and must,
balance one another if the commodity is to be sold at its natural
price in both instances. Since there is no difference in the ratio
of supply to demand in either case, but a difference in the magni¬
tude of the natural price itself, it follows that this price is
obviously determined independently of demand and supply, and
thus that it can least of all be determined by them.

For a commodity to be sold at its market-value, i.e., proportion¬
ally to the necessary social labour contained in it, the total
quantity of social labour used in producing the total mass of this
commodity must correspond to the quantity of the social want
for it, i.e., the effective social want. Competition, the fluctuations
of market-prices which correspond to the fluctuations of demand
and supply, tend continually to reduce to this scale the total
quantity of labour devoted to each kind of commodity.

The proportion of supply and demand recapitulates, first, the
relation of use-value to exchange-value, of commodity to money,
and of buyer to seller; and, second, that of producer to consumer,
although both of them may be represented by third parties, the
merchants. In considering buyer and seller, it suffices to counter¬
pose them individually in order to present their relationship.
Three individuals are enough for the complete metamorphosis

EQUALISATION OF GENERAL RATE OF PROFIT

193

of a commodity, and therefore for the process of sale and purchase
taken as a whole. A converts his commodity into the money of
B, to whom he sells his commodity, and reconverts his money
again into commodities, when he uses it to make purchases from
C; the whole process takes place among these three. Further, in
the study of money it had been assumed that the commodities
are sold at their values because there was absolutely no reason to
consider prices divergent from values, it being merely a matter
of changes of form which commodities undergo in their transfor¬
mation into money and their reconversion from money into com¬
modities. As soon as a commodity has been sold and a new
commodity bought with the receipts, we have before us the entire
metamorphosis, and to this process as such it is immaterial
whether the price of the commodity lies above or below its value.
The value of the commodity remains important as a basis,
because the concept of money cannot be developed on any other
foundation, and price, in its general meaning, is but value in
the form of money. At any rate, it is assumed in the study of
money as a medium of circulation that there is not just one meta¬
morphosis of a certain commodity. It is rather the social inter
relation of these metamorphoses which is studied. Only thus do
we arrive at the circulation of money and the development of
its function as a medium of circulation. But however important
this connection may be for the conversion of money into a circu¬
lating medium, and for its resulting change of form, it is of no
moment to the transaction between .individual buyers and sellers.

In the case of supply and demand, however, the supply is equal
to the sum of sellers, or producers, of a certain kind of commodity,
and the demand equals the sum of buyers or consumers (both
productive and individual) of the same kind of commodity. The
sums react on one another as units, as aggregate forces. The
individual counts here only as part of asocial force, as an atom of
the mass, and it is in this form that competition brings out the
social character of production and consumption.

The side of competition which happens for the moment to be
weaker is also the side in which the individual acts independently
of, and often directly against, the mass of his competitors, and
precisely in this manner is the dependence of one upon the other
impressed upon them, while the stronger side acts always more
or less as a united whole against its antagonist. If the demand for
this particular kind of commodity is greater than the supply,
one buyer outbids another — within certain limits — and so raises
the price of the commodity for all of them above the market-

194

CONVERSION OP PROFIT INTO AVERAGE PROFIT

value, while on the other hand the sellers unite in trying to sell
at a high market-price. If, conversely, the supply exceeds the
demand, one begins to dispose of his goods at a cheaper rate and
the others must follow, while the buyers unite in their efforts
to depress the market-price as much as possible below the market-
value. The common interest is appreciated by each only so long
as he gains more by it than without it. And unity of action ceases
the moment one or the other side becomes the weaker, when each
tries to extricate himself on his own as advantageously as he
possibly can. Again, if one produces more cheaply and can sell more
goods, thus possessing himself of a greater place in the market
by selling below the current market-price, or market-value, he
will do so, and will thereby begin a movement which gradually
compels the others to introduce the cheaper mode of production,
and one which reduces the socially necessary labour to a new,
and lower, level. If one side has the advantage, all belonging to
it gain. It is as though they exerted their common monopoly.
If one side is weaker, then one may try on his own hook to become
the stronger (for instance, one who works with lower costs of pro¬
duction), or at least to get off as lightly as possible, and in such
cases each for himself and the devil take the hindmost, although
his actions affect not only himself, but also all his boon
companions.32

Demand and supply imply the conversion of value into market-
value, and so far as they proceed on a capitalist basis, so far as
the commodities are products of capital, they are based on capi¬
talist production processes, i.e., on quite different relationships
than the mere purchase and sale of goods. Here it is not a question
of the formal conversion of the value of commodities into prices,
i.e., not of a mere change of form. It is a question of definite devi¬
ations in quantity of the market-prices from the market-values,
and, further, from the prices of production. In simple purchase
and sale it suffices to have the producers of commodities as such
counterposed to one another. In further analysis supply and
demand presuppose the existence of different classes and sections of

32 “If each man of a class could never have more than a given share, or
aliquot part, of the gains and possessions of the whole, he would readily
combine to raise the gain”; (he does it as soon as the proportion of demand
to supply permits it ) “this is monopoly. But where each man thinks that
he may anyway increase the absolute amount of his own share, though by
a process which lessens the whole amount, he will often do it; this is compe¬
tition.” (An Inquiry into Those Principles Respecting the Nature of Demand ,
etc., London, 1821, p. 105.)

EQUALISATION OE GENERAL RATE OF PROFIT

195

classes which divide the total revenue of a society and consume it
among themselves as revenue, and, therefore, make up the demand
created by revenue. While on the other hand it requires an
insight into the over-all structure of the capitalist production
process for an understanding of the supply and demand created
among themselves by producers as such.

Under capitalist production it is not merely a matter of obtain¬
ing an equal mass of value in another form— be it that of money
or some other commodity — for a mass of values thrown into
circulation in the form of a commodity, but it is rather a matter
of realising as much surplus-value, or profit, on capital advanced
for production, as any other capital of the same magnitude, or
pro rata to its magnitude in whichever line it is applied. It is,
therefore, a matter, at least as a minimum, of selling the com¬
modities at prices which yield the average profit, i.e., at prices of
production. In this form capital becomes conscious of itself as a
social power in which every capitalist participates proportionally
to his share in the total social capital.

First, capitalist production is in itself indifferent to the partic¬
ular use-value, and distinctive features of any commodity it
produces. In every sphere of production it is only concerned with
producing surplus-value, and appropriating a certain quantity
of unpaid labour incorporated in the product of labour. And it
is likewise in the nature of the wage-labour subordinated by capi¬
tal that it is indifferent to the specific character of its labour and
must submit to being transformed in accordance with the
requirements of capital and to being transferred from one sphere
of production to another.

Second, one sphere of production is, in fact, just as good or just
as bad as another. Every one of them yields the same profit, and
every one of them would be useless if the commodities it produced
did not satisfy some social need.

Now, if the commodities are sold at their values, then, as we
have shown, very different rates of profit arise in the various
spheres of production, depending on the different organic composi¬
tion of the masses of capital invested in them. But capital with¬
draws from a sphere with a low rate of profit and invades others,
which yield a higher profit. Through this incessant outflow and
influx, or, briefly, through its distribution among the various
spheres, which depends on how the rate of profit falls here and
rises there, it creates such a ratio of supply to demand that the
average profit in the various spheres of production becomes the
same, and values are, therefore, converted into prices of produc-

196

CONVERSION OF PROFIT INTO AVERAGE PROFIT

tion. Capital succeeds in this equalisation, to a greater or lesser
degree, depending on the extent of capitalist development in the
given nation; i.e., on the extent the conditions in the country in
question are adapted for the capitalist mode of production. With
the progress of capitalist production, it also develops its own
conditions and subordinates to its specific character and its
immanent laws all the social prerequisites on which the production
process is based.

The incessant equilibration of constant divergences is accom¬
plished so much more quickly, 1) the more mobile the capital, i.e.,
the more easily it can be shifted from one sphere and from one
place to another; 2) the more quickly labour-power can be trans¬
ferred from one sphere to another and from one production
locality to another. The first condition implies complete freedom
of trade within the society and the removal of all monopolies with
the exception of the natural ones, those, that is, which naturally
arise out of the capitalist mode of production. It implies, further¬
more, the development of the credit system, which concentrates
the inorganic mass of the disposable social capital vis-a-vis the
individual capitalist. Finally, it implies the subordination of the
various spheres of production to the control of capitalists. This last
implication is included in our premises, since we assumed that it
was a matter of converting values into prices of production in all
capitalistically exploited spheres of production. But this equilibra¬
tion itself runs into greater obstacles, whenever numerous and large
spheres of production not operated on a capitalist basis (such as
soil cultivation by small farmers), filter in between the capitalist
enterprises and become linked with them. A great density of
population is another requirement. — The second condition im¬
plies the abolition of all laws preventing the labourers from trans¬
ferring from one sphere of^ production to another and from one
local centre of production to another; indifference of the labourer
to the nature of his labour; the greatest possible reduction of
labour in all spheres of production to simple labour; the elimination
of all vocational prejudices among labourers; and last but not
least, a subjugation of the labourer to the capitalist mode of
production. Further reference to this belongs to a special analysis
of competition.

It follows from the foregoing that in each particular sphere of
production the individual capitalist, as well as the capitalists as
a whole, take direct part in the exploitation of the total working-
class by the totality of capital and in the degree of that exploi¬
tation, not only out of general class sympathy, but also for direct

EQUALISATION OF GENERAL RATE OF PROFIT

197

economic reasons. For, assuming all other conditions — among
them the value of the total advanced constant capital — to be
jnven, the average rate of profit depends on the intensity of
exploitation of the sum total of labour by the sum total of
capital.

The average profit coincides with the average surplus-value
produced for each 100 of capital, and so far as the surplus-value
is concerned the foregoing statements apply as a matter of course.
In the case of the average profit the value of the advanced capital
becomes an additional element determining the rate of profit.
In fact, the direct interest taken by the capitalist, or the capital,
of any individual sphere of production in the exploitation of the
labourers who are directly employed is confined to making an
extra gain, a profit exceeding the average, either through excep¬
tional overwork, or reduction of the wage below the average,
or through the exceptional productivity of the labour employed.
Aside from this, a capitalist who would not in his line of produc¬
tion employ any variable capital, and therefore any labourer
(in reality an exaggerated assumption), would nonetheless be as
much interested in the exploitation of the working-class by capital,
and would derive his profit quite as much from unpaid surplus-
labour, as, say, a capitalist who would employ only variable
capital (another exaggeration), and who would thus invest his
entire capital in wages. But the degree of exploitation of labour
depends on the average intensity of labour if the working-day is
given, and on the length of the working-day if the intensity of
exploitation is given. The degree of exploitation of labour deter¬
mines the rate of surplus-value, and therefore the mass of surplus-
value for a given total mass of variable capital, and consequently
the magnitude of the profit. The individual capitalist, as distinct
from his sphere as a whole, has the same special interest in
exploiting the labourers he personally employs as the capital of
a particular sphere, as distinct from the total social capital,
has in exploiting the labourers directly employed in that
sphere.

On the other hand, every particular sphere of capital, and every
individual capitalist, have the same interest in the productivity
of the social labour employed by the sum total of capital. For two
things depend on this productivity: First, the mass of use-values
in which the average profit is expressed; and this is doubly
important, since this average profit serves as a fund for the accu¬
mulation of new capital and as a fund for revenue to be spent for
consumption. Second, the value of the total capital invested (con-

198 CONVERSION OF PROFIT INTO AVERAGE PROFIT

stant and variable), which, the amount of surplus-value, or profit,
for the whole capitalist class being given, determines the rate of
profit, or the profit on a certain quantity of capital. The special
productivity of labour in any particular sphere, or in any
individual enterprise of this sphere, is of interest only to those
capitalists who are directly engaged in it, since it enables that
particular sphere, vis-a-vis the total capital, or that individual
capitalist, vis-a-vis his sphere, to make an extra profit.

Here, then, we have a mathematically precise proof why capi¬
talists form a veritable freemason society vis-a-vis the whole
working-class, while there is little love lost between them in
competition among themselves.

The price of production includes the average profit. We call it
price of production. It is really what Adam Smith calls natural
price, Ricardo calls price of production, or cost of production, and
the physiocrats call prix necessaire, because in the long run it is
a prerequisite of supply, of the reproduction of commodities in
every individual sphere.33 But none of them has revealed the
difference between price of production and value. We can well
understand why the same economists who oppose determining the
value of commodities by labour-time, i.e., by the quantity of
labour contained in them, why they always speak of prices of
production as centres around which market-prices fluctuate. They
can afford to do it because the price of production is an utterly
external and prima facie meaningless form of the value of com¬
modities, a form as it appears in competition, therefore in the mind
of the vulgar capitalist, and consequently in that of the vulgar
economist.

Our analysis has revealed how the market-value (and everything
said concerning it applies with appropriate modifications to the
price of production) embraces a surplus-profit for those who
produce in any particular sphere of production under the most
favourable conditions. With the exception of crises, and of over¬
production in general, this applies to all market-prices, no matter
how much they may deviate from market-values or market-prices
of production. For the market-price signifies that the same price
is paid for commodities of the same kind, although they may have
been produced under very different individual conditions and

31 Malthas [Prtnctplet of Political Economy, London, 1836, pp. 77-78. —

£d.].

EQUALISATION OP GENERAL RATE OF PROFIT

199

hence may have considerably different cost-prices. (We do not
speak at this point of any surplus-profits due to monopolies in
the usual sense of the term, whether artificial or natural.)

A surplus-profit may also arise if certain spheres of production
are in a position to evade the conversion of the values of their
commodities into prices of production, and thus the reduction of
their profits to the average profit. We shall devote more attention
to the further modifications of these two forms of surplus-profit
in the part dealing with ground-rent.

CHAPTER XI

EFFECTS OF GENERAL WAGE FLUCTUATIONS
ON PRICES OF PRODUCTION

Let the average composition of social capital be 80o+20y, and
the profit 20%. The rate of surplus-value is then 100%. A general
increase of wages, all else remaining the same, is tantamount to
a reduction in the rate of surplus-value. In the case of average
capital, profit and surplus-value are identical. Let wages rise 25%
Then the same quantity of labour, formerly set in motion with
20, will cost 25. We shall then have a turnover value of 80c-f-
+ 25v-|-15p instead of 80c+20T-t-20p. As before, the labour set in
motion by the variable capital produces a value of 40. If v rises
from 20 to 25, the surplus s, or p, will amount to only 15. The
profit of 15 on a capital of 105 is 14 */7 % , and this would be the
new average rate of profit. Since the price of production of com¬
modities produced by the average capital coincides with their
value, the price of production of these commodities would have
remained unchanged. A wage increase would therefore have
caused a drop in profit, but no change in the value and price of the
commodities.

Formerly, as long as the average profit was 20%, the price of
production of commodities produced in one period of turnover
was equal to their cost-price plus a profit of 20% on this cost-

20k

price, therefore =k+kp'=k-|-T^. In this formula k is a variable

magnitude, changing in accordance with the value of the means
of production that go into the commodities, and with the amount
of depreciation given up by the fixed capital to the product. The

price of production would then amount to k-f- •

Let us now select a capital, whose composition is lower than the

WAGE FLUCTUATIONS AND PRICES OF PRODUCTION

201

original composition of the average social capital of 80c+20v
(which has now changed into 764/IJc+ 2317/lly); say, 50c+50v.
In this case, the price of production of the annual product before
the wage increase would have been 50c+50T-{-20p=120, assuming
for the sake of simplicity that the entire fixed capital passes through
depreciation into the product and that the period of turnover
is the same as in the first case. For the same quantity of labour
set in motion a wage increase of 25% means an increase of the
variable capital from 50 to 621/J. If the annual product were sold
at the former price of production of 120, this would give us 50c-h
+ 621/gT+71/*p, or a rate of profit of 6*/s%. But the new average
rate of profit is 14*/,%, and since we assume all other circum¬
stances to remain the same, the capital of 50c+621/2t must also
make this profit. Now, a capital of 1121/* makes a profit of 16Vi4
at a rate of profit of 14*/,%. Therefore, the price of production of
the commodities produced by this capital is now 50c+621/*,+
+161/i4P=1288/11. Owing to a wage rise of 25%, the price of produc¬
tion of the same quantity of the same commodities, therefore, has
here risen from 120 to 128 8/14, or more than 7%.

Conversely, suppose we take a sphere of production of a higher
composition than the average capital; say, 92C+8V. The original
average profit in this case would still be 20, and if we again
assume that the entire fixed capital passes into the annual prod¬
uct and that the period of turnover is the same as in cases . I and
II, the price of production of the commodity is here also 120.

Owing to the rise in wages of 25% the variable capital for the
same quantity of labour rises from 8 to 10, the cost-price of the
commodities from 100 to 102, while the average rate of profit falls
from 20% to 14*/,%. But 100 : 14*/,=102 : 144/,. The profit now
falling to the share of 102 is therefore 144/,. For this reason, the
total product sells at k-|-kp'=102-fT44/,=1164/,. The price of
production has therefore fallen from 120 to 116 4/7, or 33/,.

Consequently, if wages are raised 25%:

1) the price of production of the commodities of a capital of
average social composition does not change;

2) the price of production of the commodities of a capital of
lower composition rises, but not in proportion to the fall in profit;

3) the price of production of the commodities of a capital of
higher composition falls, but also not in the same proportion as
profit.

Since the price of production of the commodities of the average
capital remained the same, equal to the value of the product,

202

CONVERSION OP PROFIT INTO AVERAGE PROFIT

the sum of the prices of production of the products of all capitals
remained the same as well, and equal to the sum total of the values
produced by the aggregate capital. The increase on one side and
the decrease on the other balance for the aggregate capital on the
level of the average social capital.

If the price of production rises in case II and falls in case III,
these opposite effects alone, which are brought about by a fall
in the rate of surplus-value or by a general wage increase, show
that this cannot be a matter of compensation in the price for the
rise in wages, since the fall in the price of production in case III
cannot compensate the capitalist for the fall in profit, and since
the rise of the price in case II does not prevent a fall in profit.
Rather, in either case, whether the price rises or falls, the profit
remains the same as that of the average capital, in which case the
price remains unchanged. It is the same average profit which has
fallen by 56/7, or somewhat over 25%, in the case of II as well
as III. It follows from this that if the price, did not rise in II and
fall in III, II would have to sell below and III above the new
reduced average profit. It is self-evident that, depending on wheth¬
er 50, 25, or 10 per 100 units of capital are laid out for wages,
the effect of a wage increase on a capitalist who has invested. V10 of
his capital in wages must be quite different from that on one who
has invested V4 or Vs. An increase in the price of production on the
one side, a fall on the other, depending on a capital being below
or above the average social composition, occurs solely by virtue
of the process of levelling the profit to the new reduced average
profit.

How would a general reduction in wages, and a corresponding
general rise of the rate of profit, and thus of the average profit,
now affect the prices of production of commodities produced by
capitals deviating in opposite directions from the average social
composition? We have but to reverse the foregoing exposition to
obtain the result (which Ricardo fails to analyse).

I. Average capital=80c-|-20v=100; rate of surplus-value =100%;
price of production — value of commod i ties = 80c + 20v + 20p =120;
rate of profit=20%. Suppose wages fall by one-fourth. Then the
same constant capital is set in motion by 15T, instead of 20v. Then
the value of commodities=80c+15T+ 25p=120. The quantity of
labour performed by v remains unchanged, except that the value
newly created by it is distributed differently between the capital¬
ist and the labourer. The surplus-value rises from 20 to 25 and the
rate of surplus-value from ao/20 to 2S/16, or from 100 % to 166*/, % . The
profit on 95 now =25, so that the rate of profit per 100=26"/lt. The

WAGE FLUCTUATIONS AND PRICES OF PRODUCTION

203

new composition of the capital in per cent is now 844/1#a+151#/19 =
=100.

II. Lower composition. Originally 50c+50v, as above. Due to
the fall of wages by one-fourth v is reduced to 37%, and conse¬
quently the advanced total capital to 50C+37%T=87%. If we apply
the new rate of profit of 26%,% to this, we get 100 : 26%,=
=87% : 23%g. The same mass of commodities which formerly
cost 120, now costs 87%+23%8=110l%9, this being a price re¬
duction of almost 10%.

III. Higher composition. Originally 92C+8V=100. The reduc¬
tion of wages by one-fourth reduces 8T to 6„ and the total capital
to 98. Consequently, 100 : 26%, =98 : 251*/,,. The price of pro¬
duction of the commodity, formerly 100+20=120, is now, after
the fall in wages, 98+2516/1,=1231%l> this being a rise of almost 4.

It is evident, therefore, that we have but to follow the same
development in the opposite direction with the appropriate modi¬
fications; that a general reduction of wages is attended by a gener¬
al rise of surplus-value, of the rate of surplus-value and, other
circumstances remaining the same, of the rate of profit, even if
expressed in a different proportion; a fall in the prices of produc¬
tion for commodities produced by capitals of lower composition,
and a rise in the prices of production for commodities produced
by capitals of higher composition. The result is just the reverse
of that observed for a general rise of wages.34 In both cases — rise
or fall of wages — it is assumed that the working-day remains
the same, and also the prices of the means of subsistence. In these
circumstances a fall in wages is possible only if they stood higher
than the normal price of labour, or if they are depressed below
this price. The way in which the matter is modified if the rise or
fall of wages is due to a change in value, and consequently the
price of production of commodities usually consumed by the la¬
bourer, will be analysed at some length in the part dealing with
ground-rent. At this point, however, the following remarks are
to be made once and for all:

Should the rise or fall in wages be due to a change in the value

M It is very peculiar that Ricardo [On the Principles of Political Econo¬
my, and Taxation, Third edition, London, 1821, pD. 36-41. — Ed. ] (who
naturally proceeds differently from us, since he did not understand the
levelling of values to prices of production) did not once consider this even¬
tuality, but only the first case, that of a wage rise and its influence on the
prices of production of commodities. And the seroum pecus imitatorum
(Horace, Epistles, Book I, Epistle 19. — Ed. \ did not even attempt to make
this extremely self-evident, actually tautological, practical application.

204

CONVERSION OP PROFIT INTO AVERAGE PROFIT

of the necessities of life, a modification of the foregoing findings
can take place only to the extent that commodities, whose change
of price raises or lowers the variable capital, also go into the con¬
stant capital as constituent elements and therefore affect more
than just the wages alone. But if they affect only wages, the above
analysis contains all that needs to be said.

In this entire chapter, the establishment of the general rate of
profit and the average profit, and consequently, the transmuta¬
tion of values into prices of production, are assumed as given.
The question merely was, how a general rise or fall in wages
affected the assumed prices of production of commodities. This is
but a very secondary question compared with the other important
points analysed in this part. But it is the only relevant question
treated by Ricardo, and, as we shall see,* he treated it one-
sidedly and unsatisfactorily.

* K. Marx, Theorlen uber den Mehrwert. K. Marx/F. Engels, Werke,
Band 26, Teil 2, S. 181-94.— Ed.

CHAPTER XII

SUPPLEMENTARY REMARKS

I. CAUSES IMPLYING A CHANGE IN THE PRICE
OF PRODUCTION

There are just two causes that can change the price of production
of a commodity:

First. A change in the general rate of profit. This can solely be
due to a change in the average rate of surplus-value, or, if the aver¬
age rate of surplus-value remains the same, to a change in the
ratio of the sum of the appropriated surplus-values to the sum of
the advanced total social capital.

If the change in the rate of surplus-value is not due to a depres¬
sion of wages below normal, or their rise above normal — and
movements of that kind are to be regarded merely as oscillations —
it can only occur either through a rise, or fall, in the value of
labour-power, the one being just as impossible as the other unless
there is a change in the productivity of the labour producing
means of subsistence, i.e., in the value of commodities consumed
by the labourer.

Or, through a change in the proportion of the sum of appropri¬
ated surplus-values to the advanced total capital of society. Since
the change in this case is not caused by the rate of surplus-value,
it must be caused by the total capital, or rather its constant part.
The mass of this part, technically considered, increases or decreases
in proportion to the quantity of labour-power bought by the var¬
iable capital, and the mass of its value thus increases or decreases
with the increase or decrease of its own mass. It also increases
or decreases, therefore, proportionately to the mass of the value of
the variable capital. If the same labour sets more constant capital
in motion, it has become more productive. If the reverse, then less
productive. Thus, there has been a change in the productivity
of labour, and there must have occurred a change in the value
of certain commodities.

The following law, then, applies to both cases: If the price of
production of a commodity changes in consequence of a change in

206

CONVERSION OP PROFIT INTO AVERAGE PROFIT

the general rate of profit, its own value may have remained un¬
changed. However, a change must have occurred in the value of
other commodities.

Second. The general rate of profit remains unchanged. In this
case the price of production of a commodity can change only if
its own value has changed. This may be due to more, or less,
labour being required to reproduce the commodity in question,
either because of a change in the productivity of labour which
produces this commodity in its final form, or of the labour which
produces those commodities that go into its production. The
price of production of cotton yarn may fall, either because raw
cotton is produced cheaper than before, or because the labour
of spinning has become more productive due to improved
machinery.

The price of production, as we have seen, =k+p, equal to cost-
price plus profit. This, however, =k+kp', in which k, the cost-
price, is a variable magnitude, which changes for different spheres
of production and is everywhere equal to the value of the constant
and variable capital consumed in the production of the commodi¬
ty, and p' is the average rate of profit in percentage form. If
k=200, and p'=20%, the price of production k-f kp'=200-(-
20

+200- ^=200+40 =240. This price of production may clearly

remain the same, in spite of a change in the value of the
commodities.

All changes in the price of production of commodities are re¬
duced, in the last analysis, to changes in value. But not all changes
in the value of commodities need express themselves in changes
in the price of production. The price of production is not deter¬
mined by the value of any one commodity alone, but by the
aggregate value of all commodities. A change in commodity A may
therefore be balanced by an opposite change in commodity B, so
that the general relation remains the same.

II. PRICE OF PRODUCTION OF COMMODITIES OF AVERAGE
COMPOSITION

We have seen how a deviation in prices of production from
values arises from:

1) adding the average profit instead of the surplus-value
contained in a commodity to its cost-price;

2) the price of production, which so deviates from the value
of a commodity, entering into the cost-price of other commodities
as one of its elements, so that the cost-price of a commodity may

SUPPLEMENTARY REMARKS

207

already contain a deviation from value in those means of produc¬
tion consumed by it, quite aside from a deviation of its own which
may arise through a difference between the average profit and the
surplus-value.

It is therefore possible that even the cost-price of commodities
produced by capitals of average composition may differ from the
sum of the values of the elements which make up this component
of their price of production. Suppose, the average composition is
80c+20t. Now, it is possible that in the actual capitals of this
composition 80c may be greater or smaller than the value of c,
i.e., the constant capital, because this c may be made up of com¬
modities whose price of production differs from their value. In
the same way, 20T might diverge from its value if the consumption
of the wage includes commodities whose price of production
diverges from their value; in which case the labourer would work
a longer, or shorter, time to buy them back (to replace them) and
would thus perform more, or less, necessary labour than would
be required if the price of production of such necessities of life
coincided with their value.

However, this possibility does not detract in the least from the
correctness of the theorems demonstrated which hold for commodi¬
ties of average composition. The quantity of profit falling to these
commodities is equal to the quantity of surplus-value contained
in them. For instance, in a capital of the given composition 80c-|-
-J-20T, the most important thing in determining surplus-value is
not whether these figures are expressions of actual values, but
how they are related to one another, i.e., whether v =1/& of the total
capital, and c=*it. Whenever this is the case, the surplus-value
produced by v is, as was assumed, equal to the average profit.
On the other hand, Since it equals the average profit, the price of
production =cost-price plus profit=k-fp=k+s; i.e., in practice
it is equal to the value of the commodity. This implies that a rise
or fall in wages would not change the price of production, k + p,
any more than it would change the value of the commodities, and
would merely effect a corresponding opposite movement, a fall or
a rise, in the rate of profit. For if a rise or fall of wages were here
to bring about a change in the price of commodities, the rate of
profit in these spheres of average composition would rise above,
or fall below, the level prevailing in other spheres. The sphere
of average composition maintains the same level of profit as the
other spheres only so long as the price remains unchanged. The
practical result is therefore the same as it would be if its products
were sold at their real value. For if commodities are sold at their

208

CONVERSION OF PROFIT INTO AVERAGE PROFIT

actual values, it is evident that, other conditions being equal,
a rise, or fall, in wages will cause a corresponding fall or rise in
profit, but no change in the value of commodities, and that under
all circumstances a rise or fall in wages can never affect the value
of commodities, but only the magnitude of the surplus-value.

III. THE CAPITALIST S GROUNDS FOR COMPENSATING

It has been said that competition levels the rates of profit of
the different spheres of production into an average rate of profit
and thereby turns the values of the products of these different
spheres into prices of production. This occurs through the con¬
tinual transfer of capital from one sphere to another, in which,
for the moment, the profit happens to lie above average. The
fluctuations of profit caused by the cycle of fat and lean years
succeeding one another in any given branch of industry within
given periods must, however, receive due consideration. This
incessant outflow and inflow of capital between the different
spheres of production creates trends of rise and fall in the rate of
profit, which equalise one another more or less and thus have
a tendency to reduce the rate of profit everywhere to the same
common and general level.

This movement of capitals is primarily caused by the level of
market-prices, which lift profits above the general average in one
place and depress them below it in another. Merchant’s capital
is left out of consideration as it is irrelevant at this point, for we
know from the sudden paroxysms of speculation appearing in
certain popular articles that it can withdraw masses of capital
from one line of business with extraordinary rapidity and throw
them with equal rapidity into another. Yet with respect to each
sphere of actual production— industry, agriculture, mining,
etc. — the transfer of capital from one sphere to another offers
considerable difficulties, particularly on account of the existing
fixed capital. Experience shows, moreover, that if a branch of
industry, such as, say, the cotton industry, yields unusually
high profits at one period, it makes very little profit, or even
suffers losses, at another, so that in a certain cycle of years the
average profit is much the same as in other branches. And capital
soon learns to take this experience into account.

What competition does not show, however, is the determination
of value, which dominates the movement of production; and the
values that lie beneath the prices of production and that deter¬
mine them in the last instance. Competition, on the other hand.

SUPPLEMENTARY REMARKS

209

shows: 1) the average profits, which are independent of the organic
composition of capital in the different spheres of production,
and therefore also of the mass of living labour appropriated by
any given capital in any given sphere of exploitation; 2) the rise
and fall of prices of production caused by changes in the level
of wages, a phenomenon which at first glance completely contra¬
dicts the value relation of commodities; 3) the fluctuations of
market-prices, which reduce the average market-price of commod¬
ities in a given period of time, not to the market-mine, but to
a very different market-price of production, which diverges
considerably from this market-value. All these phenomena seem
to contradict the determination of value by labour-time as much
as the nature of surplus-value consisting of unpaid surplus-
labour. Thus everything appears reversed in competition. The
final pattern of economic relations as seen on the surface, in their
real existence and consequently in the conceptions by which the
bearers and agents of these relations seek to understand them,
is very much different from, and indeed quite the reverse of,
their inner but concealed essential pattern and the conception
corresponding to it.

Further. As soon as capitalist production reaches a certain
level of development, the equalisation of the different rates of
profit in individual spheres to general rate of profit no longer
proceeds solely through the play of attraction and repulsion, by
which market-prices attract or repel Capital. After average prices,
and their corresponding market-prices, become stable for a time
it reaches the consciousness of the individual capitalists that
this equalisation balances definite differences, so that they
include these in their mutual calculations. The differences exist
in the mind of the capitalists and are taken into account as grounds
for compensating.

Average profit is the basic conception, the conception that
capitals of equal magnitude must yield equal profits in equal
time spans. This, again, is based on the conception that the
capital in each sphere of production must share pro rata to its
magnitude in the total surplus-value squeezed out of the labourers
by the total social capital; or, that every individual capital
should be regarded merely as a part of the total social capital,
and every capitalist actually as a shareholder in the total social
enterprise, each sharing in the total profit pro rata to the
magnitude of his share of capital.

This conception serves as a basis for the capitalist’s calcula¬
tions, for instance, that a capital whose turnover is slower than

210

CONVERSION OF PROFIT INTO AVERAGE PROFIT

another’s, because’ its commodities take longer to be produced,
or because they are sold in remoter markets, nevertheless charges
the profit it loses in this way, and compensates itself by raising
the price. Or else, that investments of capital in lines exposed
to greater hazards, for instance in shipping, are compensated
by higher prices. As soon as capitalist production, and with it
the insurance business, are developed, the hazards are, in effect,
made equal for all spheres of production (cf. Corbet*); but the
more hazardous lines pay higher insurance rates, and recover
them in the prices of their commodities. In practice all this
means that every circumstance, which renders one line of pro¬
duction— and all of them are considered equally necessary within
certain limits — less profitable, and another more profitable, is
taken into account once and for all as valid ground for compen¬
sation, without always requiring the renewed action of compe¬
tition to justify the motives or factors for calculating this
compensation. The capitalist simply forgets — or rather fails to see,
because competition does not point it out to him — that all these
grounds for compensation mutually advanced by capitalists in
calculating the prices of commodities of different lines of pro¬
duction merely come down to the fact that they all have an equal
claim, pro rata to the magnitude of their respective capitals, to
the common loot, the total surplus-value. It rather seems to them
that since the profit pocketed by them differs from the surplus-
value they appropriated, these grounds for compensation do not
level out their participation in the total surplus-value, but
create the profit itself, which seems to be derived from the addi¬
tions made on one or another ground to the cost-price of their
commodities.

In other respects the statements made in Chapter VII, p. 116,**
concerning the capitalists’ assumptions as to the source of surplus-
value, apply also to average profit. The present case appears
different only in so far as a saving in cost-price depends on indi¬
vidual business acumen, alertness, etc., assuming the market-
price of commodities and the exploitation of labour to be given.

* Th. Corbet, An Inquiry into the Causes and Modes of the Wealth of Indi¬
viduals, London, 1841, pp. 100-02. — Ed.

** Present edition: pp. 136-37. — Ed.

THE LAW OF THE TENDENCY
OF THE RATE OF PROFIT TO FALL

CHAPTER XIII

THE LAW AS SUCH

Assuming a given wage and working-day, a variable capital,
for instance of 100, represents a certain number of employed
labourers. It is the index of this number. Suppose £ 100 are the
wages of 100 labourers for, say, one week. If these labourers
perform equal amounts of necessary and surplus-labour, if they
work daily as many hours for themselves, i.e., for the repro¬
duction of their wage, as they do for the capitalist, i.e., for the
production of surplus-value, then the value of their total pro¬
duct = £200, and the surplus-value they produce would amount

to £100. The rate of surplus-value, would = 100%. But, as we

have seen, this rate of surplus-value would nonetheless express
itself in very different rates of profit, depending on the different
volumes of constant capital c and consequently of the total

capital C, because the rate of profit=-^-. The rate of surplus-
value is 100%:

100

If c=50, and v = 100, then p ' = = 662 /3 % ;

100

„ c = 100, and v = 100, then p' ==200= 50%;

„ c=200, and v = 100, then p'=^=331/3%;

„ c=300, and v = 100, then p'»=^=25%;

„ c=400, and v = 100, then p'=i^=20%.

This is how the same rate of surplus-value would express itself
under the same degree of labour exploitation in a falling rate of

212

TENDENCY OF RATE OF PROFIT TO FALL

profit, because the material growth of the constant capital
implies also a growth — albeit not in the same proportion — in its
value, and consequently in that of the total capital.

If it is further assumed that this gradual change in the com¬
position of capital is not confined only to individual spheres of
production, but that it occurs more or less in all, or at least in
the key spheres of production, so that it involves changes in the
average organic composition of the total capital of a certain
society, then the gradual growth of constant capital in relation
to variable capital must necessarily lead to a gradual fall of
the general rate of profit, so long as the rate of surplus-value,
or the intensity of exploitation of labour by capital, remain the
same. Now we have seen that it is a law of capitalist production
that its development is attended by a relative decrease of variable
in relation to constant capital, and consequently to the total
capital set in motion. This is just another way of saying that
owing to the distinctive methods of production developing in
the capitalist system the same number of labourers, i.e., the same
quantity of labour-power set in motion by a variable capital of
a given value, operate, work up and productively consume in
the same time span an ever-increasing quantity of means of
labour, machinery and fixed capital of all sorts, raw and auxil¬
iary materials — and consequently a constant capital of an ever-
increasing value. This continual relative decrease of the variable
capital vis-a-vis the constant, and consequently the total capital,
is identical with the progressively higher organic composition
of the social capital in its average. It is likewise just another
expression for the progressive development of the social pro¬
ductivity of labour, which is demonstrated precisely by the fact
that the same number of labourers, in the same time, i.e., with
less labour, convert an ever-increasing quantity of raw and aux¬
iliary materials into products, thanks to the growing application
of machinery and fixed capital in general. To this growing quan¬
tity of value of the constant capital — although indicating the
growth of the real mass of use-values of which the constant capital
materially consists only approximately — corresponds a progres¬
sive cheapening of products. Every individual product, considered
by itself, contains a smaller quantity of labour than it did on
a lower level of production, where the capital invested in wages
occupies a far greater place compared to the capital invested in
means of production. The hypothetical series drawn up at the
beginning of this chapter expresses, therefore, the actual tendency
of capitalist production. This mode of production produces a

THE LAW AS SUCH

213

progressive relative decrease of the variable capital as compared
to the constant capital, and consequently a continuously rising
organic composition of the total capital. The immediate result
of this is that the rate of surplus-value, at the same, or even a
rising, degree of labour exploitation, is represented by a con¬
tinually falling general rate of profit. (We shall see later* why
this fall does not manifest itself in an absolute form, but rather
as a tendency toward a progressive fall.) The progressive tendency
of the general rate of profit to fall is, therefore, just an expression
peculiar to the capitalist mode of production of the progressive
development of the social productivity of labour. This does not
mean to say that the rate of profit may not fall temporarily for
other reasons. But proceeding from the nature of the capitalist
mode of production, it is thereby proved a logical necessity that
in its development the general average rate of surplus-value
must express itself in a falling general rate of profit. Since the
mass of the employed living labour is continually on the decline
as compared to the mass of materialised labour set in motion
by it, i.e., to the productively consumed means of production,
it follows that the portion of living labour, unpaid and con¬
gealed in surplus-value, must also be continually on the decrease
compared to the amount of value represented by the invested
total capital. Since the ratio of the mass of surplus-value to the
value of the invested total capital forms the rate of profit, this
rate must constantly fall.

Simple as this law appears from the foregoing statements, all
of political economy has so far had little success in discovering
it, as we shall see in a later part.** The economists perceived
the phenomenon and cudgelled their brains in tortuous attempts
to interpret it. Since this law is of great importance to capitalist
production, it may be said to be a mystery whose solution has
been the goal of all political economy since Adam Smith, the
difference between the various schools since Adam Smith having
been in the divergent approaches to a solution. When we consider,
on the other hand, that up to the present political economy has
been running in circles round the distinction between constant
and variable capital, but has never known how to define it accu¬
rately; that it has never separated surplus-value from profit,
and never even considered profit in its pure form as distinct

* Present edition: Ch. XIV. — Ed.

** K. Marx, Theorien iiber den Mchrwert. K. Marx/F. Engels, Werke,
Band 26, Teil 2, S. 435-66, 54M3 .—Ed.

K — 2494

214

TENDENCY OF RATE OF PROFIT TO FALL

from its different, independent components, such as industrial
profit, commercial profit, interest, and ground-rent; that it has
never thoroughly analysed the differences in the organic composi¬
tion of capital, and, for this reason, has never thought of analys¬
ing the formation of the general rate of profit — if we consider
all this, the failure to. solve this riddle is no longer surprising.

We intentionally present this law before going on to the division
of profit into different independent categories. The fact that this
analysis is made independently of the division of profit into
different parts, which fall to the share of different categories of
people, shows from the outset that this law is, in its entirety,
independent of this division, and just as independent of the
mutual relations of the resultant categories of profit. The profit
to which we are here referring is but another name for surplus-
value itself, which is presented only in its relation to total capital
rather than to variable capital, from which it arises. The drop
in the rate of profit, therefore, expresses the falling relation
of surplus-value to advanced total capital, and is for this reason
independent of any division whatsoever of this surplus-value
among the various categories.

We have seen that at a certain stage of capitalist development,
where the organic composition of capital c : v was 50 : 100,
a rate of surplus-value of 100% was expressed in a rate of profit
of 66 2/3%, and that at a higher stage, where c : v was 400 : 100,
the same rate of surplus-value was expressed in a rate of profit
of only 20%. What is true of different successive stages of devel¬
opment in one country, is also true of different coexisting stages
of development in different countries. In an undeveloped country,
in which the former composition of capital is the average, the
general rate of profit would = 662/3%, while in a country with
the latter composition and a much higher stage of development
it would = 20%.

The difference between the two national rates of profit might
disappear, or even be reversed, if labour were less productive in
the less developed country, so that a larger quantity of labour
were to be represented in a smaller quantity of the same commod¬
ities, and a larger exchange-value were represented in less use-
value. The labourer would then spend more of his time in
reproducing his own means of subsistence, or their value, and less
time in producing surplus-value; consequently, he would perform
less surplus-labour, with the result that the rate of surplus-
value would be lower. Suppose, the labourer of the less developed
country were to work */, of the working-day for himself and */s

THE LAW AS SUCH

215

for the capitalist; in accordance with the above illustration, the
same labour-power would then be paid with 133 1/a and would
furnish a surplus of only 662/s. A constant capital of 50 would
correspond to a variable capital of 1337s. The rate of surplus-
value would amount to 662/s : 1331/s=50%, and the rate of profit
to 662/a : 18373, or approximately 367a%.

Since we have not so far analysed the different component parts
of profit, i.e., they do not for the present exist for us, we make
the following remarks beforehand merely to avoid misunderstand¬
ing: In comparing countries in different stages of development it
would be a big mistake to measure the level of the national rate
of profit by, say, the level of the national rate of interest, namely
when comparing countries with a developed capitalist production
with countries in which labour has not yet been formally subjected
to capital, although in reality the labourer is exploited by the
capitalist (as, for instance, in India, where the ryot manages
his farm as an independent producer whose production as such
is not, therefore, as yet subordinated to capital, although the
usurer may not only rob him of his entire surplus-labour by means
of interest, but may also, to use a capitalist term, hack off a
part of his wage). This interest comprises all the profit, and more
than the profit, instead of merely expressing an aliquot part of
the produced surplus-value, or profit, as it does in countries with
a developed capitalist production. On the other hand, the rate of
interest is, in this case, mostly determined by relations (loans
granted by usurers to owners of larger estates who draw ground-
rent) which have nothing to do with profit, and rather indicate
to what extent usury appropriates ground-rent.

As regards countries possessing different stages of development
of capitalist production, and consequently capitals of different
organic composition, a country where the normal working-day
is shorter than another’s may have a higher rate of surplus-
value (one of the factors which determines the rate of profit).
First, if the English ten-hour working-day is, on account of its
higher intensity, equal to an Austrian working-day of 14 hours,
then, dividing the working-day equally in both instances, 5 hours
of English surplus-labour may represent a greater value on the
world-market than 7 hours of Austrian surplus-labour. Second,
a larger portion of the English working-day than of the Austrian
may represent surplus-labour.

The law of the falling rate of profit, which expresses the same,
or even a higher, rate of surplus-value, states, in other words,
that any quantity of the average social capital, say, a capital

216 TENDENCY OF RATE OF PROFIT TO FALL

of 100, comprises an ever larger portion of means of labour,
and an ever smaller portion of living labour. Therefore, since the
aggregate mass of living labour operating the means of production
decreases in relation to the value of these means of production,
it follows that the unpaid labour and the portion of value in
which it is expressed must decline as compared to the value of
the advanced total capital. Or: An ever smaller aliquot part of
invested total capital is converted into living labour, and this
total capital, therefore, absorbs in proportion to its magnitude
less and less surplus-labour, although the unpaid part of the
labour applied may at the same time grow in relation to the
paid part. The relative decrease of the variable and increase of
the constant capital, however much both parts may grow in
absolute magnitude, is, as we have said, but another expression
for greater productivity of labour.

Let a capital of 100 consist of 80c+20v, and the latter=20
labourers. Let the rate of surplus-value be 100%, i.e., the labourers
work half the day for themselves and the other half for the capi¬
talist. Now let the capital of 100 in a less developed country =
= 20c f 80v, and let the latter=80 labourers. But these labourers
require 2/3 of the day for themselves, and work only 1/3 for the
capitalist. Everything else being equal, the labourers in the
first case produce a value of 40, and in the second of 120.
The first capital produces 80c -f- 20v -(- 20a =120; rate of profit=20%.
The second capital, 20c-|-80v+40a=140; rate of profit 40%. In the
second case the rate of profit is, therefore, double the first,
although the rate of surplus-value in the first = 100%, which is
double that of the second, where it is only 50%. But then, a
capital of the same magnitude appropriates the surplus-labour
of only 20 labourers in the first case, and of 80 labourers in the
second case.

The law of the progressive falling of the rate of profit, or the
relative decline of appropriated surplus-labour compared to the
mass of materialised labour set in motion by living labour, does
not rule out in any way that the absolute mass of exploited
labour set in motion by the social capital, and consequently the
absolute mass of the surplus-labour it appropriates, may grow;
nor, that the capitals controlled by individual capitalists may
dispose of a growing mass of labour and, hence, of surplus-labour,
the latter even though the number of labourers they employ
does not increase.

Take a certain working population of, say, two million. Assume,
furthermore, that the length and intensity of the average working-

THE LAW AS SUCH

217

day, and the level of wages, and thereby the proportion bet¬
ween necessary and surplus-labour, are given. In that case
the aggregate labour of these two million, and their surplus-
labour expressed in surplus-value, always produces the same
magnitude of value. But with the growth of the mass of the
constant (fixed and circulating) capital set in motion by this
labour, this produced quantity of value declines in relation to
the value of this capital, which value grows with its mass, even
if not in quite the same proportion. This ratio, and consequently
the rate of profit, shrinks in spite of the fact that the mass of
commanded living labour is the same as before, and the same
amount of surplus-labour is sucked out of it by the capital. It
changes because the mass of materialised labour set in motion
by living labour increases, and not because the mass of living
labour has shrunk. It is a relative decrease, not an absolute one,
and has, in fact, nothing to do with the absolute magnitude of
the labour and surplus-labour set in motion. The drop in the rate
of profit is not due to an absolute, but only to a relative decrease
of the variable part of the total capital, i.e., to its decrease in
relation to the constant part.

What applies to any given mass of labour and surplus-labour,
also applies to a growing number of labourers, and, thus, under
the above assumption, to any growing mass of commanded labour
in general, and to its unpaid part, the surplus-labour, in par¬
ticular. If the working population increases from two million to
three, and if the variable capital invested in wages also rises
to three million from its former two' million, while the constant
capital rises from four million to fifteen million, then, under
the above assumption of a constant working-day and a constant
rate of surplus-value, the mass of surplus-labour, and of surplus-
value, rises by one-half, i.e., 50%, from two million to three.
Nevertheless, in 6pite of this growth of the absolute mass of
surplus-labour, and hence of surplus-value, by 50%, the ratio of
variable to constant capital would fall from 2 : 4 to 3 : 15, and
the ratio of surplus-value to total capital would be (in millions)

I. 4c+2v+2.; C=6, p'=331/,%.

II. 15c+3t+3b; C=18, p'=16*/,%-

While the mass of surplus-value has increased by one-half, the
rate of profit has fallen by one-half. However, the profit is only
the surplus-value calculated in relation to the total social capital,
and the mass of profit, its absolute magnitude, is socially equal
to the absolute magnitude of the surplus-value. The absolute

218

TENDENCY OP RATE OP PROFIT TO FALL

magnitude of the profit, its total amount, would, therefore,
have grown by 50%, in spite of its enormous relative decrease
compared to the advanced total capital, or in spite of the enor¬
mous decrease in the general rate of profit. The number of labour¬
ers employed by capital, hence the absolute mass of the labour
set in motion by it, and therefore the absolute mass of surplus-
labour absorbed by it, the mass of the surplus-value produced
by it, and therefore the absolute mass of the profit produced
by it, can, consequently, increase, and increase progressively,
in spite of the progressive drop in the rate of profit. And this
not only can be so. Aside from temporary fluctuations it must
be so, on the basis of capitalist production.

Essentially, the capitalist process of production is simulta¬
neously a process of accumulation. We have shown that with
the development of capitalist production the mass of values to
be simply reproduced, or maintained, increases as the productiv¬
ity of labour grows, even if the labour-power employed should
remain constant. But with the development of social productiv¬
ity of labour the mass of produced use-values, of which the means
of production form a part, grows still more. And the additional
labour, through whose appropriation this additional wealth can
be reconverted into capital, does not depend on the value, but
on the mass of these means of production (including means of
subsistence), because in the production process the labourers have
nothing to do with the value, but with the use-value, of the
means of production. Accumulation itself, however, and the
concentration of capital that goes with it, is a material means
of increasing productiveness. Now, this growth of the means
of production includes the growth of the working population,
the creation of a working population, which corresponds to the
surplus-capital, or even exceeds its general requirements, thus
leading to an over-population of workers. A momentary excess
of surplus-capital over the working population it has comman¬
deered, would have a two-fold effect. It would, on the one hand,
by raising wages, mitigate the adverse conditions which deci¬
mate the offspring of the labourers and would make marriages
easier among them, so as gradually to increase the population.
On the other hand, by applying methods which yield relative
surplus-value (introduction and improvement of machinery) it
would produce a far more rapid, artificial, relative over-popu¬
lation, which in its turn, would be a breeding-ground for a really
swift propagation of the population, since under capitalist
production misery produces population. It therefore follows of

THE LAW AS SUCH

219

itself from the nature of the capitalist process of accumulation,
which is but one facet of the capitalist production process, that
the increased mass of means of production that is to be converted
into capital always finds a correspondingly increased, even
excessive, exploitable worker population. As the process of
production and accumulation advances therefore, the mass of
available and appropriated surplus-labour, and hence the absolute
mass of profit appropriated by the social capital, must grow.
Along with the volume, however, the same laws of production
and accumulation increase also the value of the constant capital
in a mounting progression more rapidly than that of the variable
part of capital, invested as it is in living labour. Hence, the
same laws produce for the social capital a growing absolute mass
of profit, and a falling rate of profit.

We shall entirely ignore here that with the advance of capitalist
production and the attendant development of the productiveness
of social labour and multiplication of production branches,
hence products, the same amount of value represents a progres¬
sively increasing mass of use-values and enjoyments.

The development of capitalist production and accumulation
lifts labour-processes to an increasingly enlarged scale and thus
imparts to them ever greater dimensions, and involves accordingly
larger investments of capital for each individual establishment.
A mounting concentration of capitals (accompanied, though on
a smaller scale, by an increase in the number of capitalists) is,
therefore, one of its material requirements as well as one of its
results. Hand in hand with it, mutually interacting, there occurs
a progressive expropriation of the more or less direct producers.
It is, then, natural for the individual capitalists to command
increasingly large armies of labourers (no matter how much
the variable capital may decrease in relation to the constant),
and natural, too, that the mass of surplus-value, and hence profit,
appropriated by them, should grow simultaneously with, and in
spite of, the fall in the rate of profit. The causes which concen¬
trate masses of labourers under the command of individual
capitalists, are the very Same that swell the mass of the invested
fixed capital, and auxiliary and raw materials, in mounting
proportion as compared to the mass of employed living labour.

It requires no more than a passing remark at this point to
indicate that, given a certain labouring population, the mass of
surplus-value, hence the absolute mass of profit, must grow if
the rate of surplus-value increases, be it through a lengthening
or intensification of the working-day, or through a drop in the

220

TENDENCY OF RATE OF PROFIT TO FALL

value of wages due to an increase in the productiveness of labour,
and that it must do so in spite of the relative decrease of variable
capital in respect to constant.

The same development of the productiveness of social labour,
the same laws which express themselves in a relative decrease of
variable as compared to total capital, and in the thereby facili¬
tated accumulation, while this accumulation in its turn becomes
a starting-point for the further development of the productive¬
ness and for a further relative decrease of variable capital— this
same development manifests itself, aside from temporary fluctua¬
tions, in a progressive increase of the total employed labour-
power and a progressive increase of the absolute mass of surplus-
value, and hence of profit.

Now, what must be the form of this double-edged law of a
decrease in the rate of profit and a simultaneous increase in the
absolute mass of profit arising from the same causes? As a law
based on the fact that under given conditions the appropriated
mass of surplus-labour, hence of surplus-value, increases, and
that, so far as the total capital is concerned, or the individual
capital as an aliquot part of the total capital, profit and surplus-
value are identical magnitudes?

Let us take an aliquot part of capital upon which we calculate
the rate of profit, e.g., 100. These 100 represent the average
composition of the total capital, say, 80c-j-20T. We have seen in
the second part of this book that the average rate of profit in
the various branches of production is determined not by the
particular composition of each individual capital, but by the
average social composition. As the variable capital decreases
relative to the constant, hence the total capital of 100, the rate
of profit, or the relative magnitude of surplus-value, i.e., its
ratio to the advanced total capital of 100, falls even though the
intensity of exploitation were to remain the same, or even to
increase. But it is not this relative magnitude alone which falls.
The magnitude of the surplus-value or profit absorbed by the
total capital of 100 also falls absolutely. At a rate of surplus-
value of 100%, a capital of 60e-f40v produces a mass of surplus-
value, and hence of profit, amounting to 40; a capital of 70c4-30v
a mass of profit of 30; and for a capital of 80c+20v the profit
falls to 20. This falling applies to the mass of surplus-value,
and hence of profit, and is due to the fact that the total capi¬
tal of 100 employs less living labour, and, the intensity of labour
exploitation remaining the same, sets in motion less surplus-
labour, and therefore produces less surplus-value. Taking any

THE LAW AS SUCH

221

aliquot part of the social capital, i.e., a capital of average com¬
position, as a standard by which to measure surplus-value — and
this is done in all profit calculations— a relative fall of surplus-
value is generally identical with its absolute fall. In the cases
given above, the rate of profit sinks from 40% to 30% and to
20%, because, in fact, the mass of surplus-value, and hence of
profit, produced by the same capital falls absolutely from 40
to 30 and to 20. Since the magnitude of the value of the capital,
by which the surplus-value is measured, is given as 100, a fall
in the proportion of surplus-value to this given magnitude can
be only another expression for the decrease of the absolute magni¬
tude of surplus-value and profit. This is, indeed, a tautology.
But, as shown, the fact that this decrease occurs at all, arises
from the nature of the development of the capitalist process of
production.

On the other hand, however, the same causes which bring about
an absolute decrease of surplus-value, and hence profit, on a
given capital, and consequently of the rate of profit calculated
in per cent, produce an increase in the absolute mass of surplus-
value, and hence of profit, appropriated by the social capital
(i.e., by all capitalists taken as a whole). How does this occur,
what is the only way in which this can occur, or what are the
conditions obtaining in this seeming contradiction?

If any aliquot part = 100 of the social capital, and hence any
100 of average social composition, is a given magnitude, for which
therefore a fall in the rate of profit coincides with a fall in the
absolute magnitude of the profit because the capital which here
serves as a standard of measurement is a constant magnitude,
then the magnitude of the social capital like that of the capital
in the hands of individual capitalists, is variable, and in keeping
with our assumptions it must vary inversely with the decrease
of its variable portion.

In our former illustration, when the percentage of composition
was 60c-j-40T, the corresponding surplus-value, or profit, was 40,
and hence the rate of profit 40%. Suppose, the total capital in
this stage of composition was one million. Then the total surplus-
value, and hence the total profit, amounted to 400,000. Now,
if the composition later=80c-|-20v, while the degree of labour
exploitation remained the same, then the surplus-value or profit
for each 100 = 20. But since the absolute mass of surplus-value
or profit increases, as demonstrated, in spite of the decreasing
rate of profit or the decreasing production of surplus-value by
every 100 of capital — increases, say, from 400,000 to 440,000,

222 TENDENCY OF RATE OF PROFIT TO FALL

then this occurs solely because the total capital which formed
at the time of this new composition has risen to 2,200,000. The
mass of the total capital set in motion has risen to 220%, while
the rate of profit has fallen by 50%. Had the total capital no
more than doubled, it would have to produce as much surplus-
value and profit to obtain a rate of profit of 20% as the old capital
of 1,000,000 produced at 40%. Had it grown to less than double,
it would have produced less surplus-value, or profit, than the
old capital of 1,000,000, which, in its former composition, would
have had to grow from 1,000,000 to no more than 1,100,000 to
raise its surplus-value from 400,000 to 440,000.

We again meet here the previously* defined law that the
relative decrease of the variable capital, hence the development
of the social productiveness of labour, involves an increasingly
large mass of total capital to set in motion the same quantity of
labour-power and squeeze out the same quantity of surplus-labour.
Consequently, the possibility of a relative surplus of labouring
people develops proportionately to the advances made by capital¬
ist production not because tbe productiveness of social labour
decreases, but because it increases. It does not therefore arise out
of an absolute disproportion between labour and the means of
subsistence, or the means for the production of these means of
subsistence, but out of a disproportion occasioned by capitalist
exploitation of labour, a disproportion between the progressive
growth of capital and its relatively shrinking need for an
increasing population.

Should the rate of profit fall by 50%, it would shrink one-half.
If the mass of profit is to remain the same, the capital must be
doubled. For the mass of profit made at a declining rate of profit
to remain the same, the multiplier indicating the growth of the
total capital must be equal to the divisor indicating the fall of
the rate of profit. If the rate of profit falls from 40 to 20, the total
capital must rise inversely at the rate of 20 : 40 to obtain the
same result. If the rate of profit falls from 40 to 8, the capital
would have to increase at the rate of 8 : 40, or five-fold. A capital
of 1,000,000 at 40% produces 400,000, and a capital of 5,000,000
at 8% likewise produces 400,000. This applies if we want the
result to remain the same. But if the result is to be higher, then
the capital must grow at a greater rate than the rate of profit
falls. In other words, for the variable portion of the total capital
not to remain the same in absolute terms, but to increase abso-

English edition: Vol. I, p. 644 .—Ed.

THE LAW AS SUCH

223

lutely, in spite of its falling in percentage of the- total capital,
the total capital must grow at a faster rate than the percentage
of the variable capital falls. It must grow so considerably that
in its new composition it should require more than the old portion
of variable capital to purchase labour-power. If the variable
portion of a capital=100 should fall from 40 to 20, the total
capital must rise higher than 200 to be able to employ a larger
variable capital than 40.

Even if the exploited mass of the working population were to
remain constant, and only the length and intensity of the working-
day were to increase, the mass of the invested capital would
have to increase, since it would have to be greater in order to
employ the same mass of labour under the old conditions of
exploitation after the composition of capital changes.

Thus, the same development oi the social productiveness of
labour expresses itself with the progress of capitalist production
on the one hand in a tendency of the rate of profit to fall progres¬
sively and, on the other, in a progressive growth of the absolute
mass of the appropriated surplus-value, or profit; so that on the
whole a relative decrease of variable capital and profit is accom¬
panied by an absolute increase of both. This two-fold effect, as
we have seen, can express itself only in a growth of the total
capital at a pace more rapid than that at which the rate of profit
falls. For an absolutely increased variable capital to be employed
in a capital of higher composition, or one in which the constant
capital has increased relatively more, the total capital must not
only grow proportionately to its higher composition, but still
more rapidly. It follows, then, that as the capitalist mode of
production develops, an ever larger quantity of capital is required
to employ the same, let alone an increased, amount of labour-
power. Thus, on a capitalist foundation, the increasing produc¬
tiveness of labour necessarily and permanently creates a seeming
over-population of labouring people. If the variable capital
forms just x/« of the total capital instead of the former I/a, the
total capital must be trebled to employ the same amount of
labour-power. And if twice as much labour-power is to be
employed, the total capital must increase six-fold.

Political economy, which has until now been unable to explain
the law of the tendency of the rate of profit to fall, pointed self-
consolingly to the increasing mass of profit, i.e., to the growth
of the absolute magnitude of profit, be it for the individual
capitalist or for the sooial capital, but this was also based on
mere platitude and speculation.

224

TENDENCY OF RATE OF PROFIT TO FALL

To say that the mass of profit is determined by two factors —
first, the rate of profit, and, secondly, the mass of capital invested
at this rate, is mere tautology. It is therefore but a corollary of
this tautology to say that there is a possibility for the mass of
profit to grow even though the rate of profit may fall at the
same time. It does not help us one step farther, since it is just
as possible for the capital to increase without the mass of profit
growing, and for it to increase even while the mass of profit
falls. For 100 at 25% yields 25, and 400 at 5% yields only 20. 36
But if the same causes which make the rate of profit fall, entail
the accumulation, i.e., the formation, of additional capital,
and if each additional capital employs additional labour and
produces additional surplus-value; if, on the other hand, the
mere fall in the rate of profit implies that the constant capital,
and with it the total old capital, have increased, then this process
ceases to be mysterious. We shall see later* to what deliberate
falsifications some people resort in their calculations to spirit
away the possibility of an increase in the mass of profit simul¬
taneous with a decrease in the rate of profit.

We have shown how the same causes that bring about a
tendency for the general rate of profit to fall necessitate an acceler-

34 “We should also expect that, however the rate of the profits of stock
might diminish in consequence of the accumulation of capital on the land
and the rise of wages, yet the aggregate amount of profits would increase.
Thus, supposing that, with repeated accumulations of £100,000, the rate
of profit should fall from 20 io 19, to 18, to 17%, a constantly diminishing
rate, we should expect that the whole amount of profits received by those
successive owners of capital would be always progressive; that it would be
greater when the capital was £200,000, than when £100,000; still greater
when £300,000; and so on, increasing, though at a diminishing rate, with
every increase of capital. This progression, however, is only true for a cer¬
tain time; thus 19% on £200,000 is more than 20% on £100,000; again 18%
on £300,000 is more than 19% on £200,000; but after capital has accumu¬
lated to a large amount, and profits have fallen, the further accumulation
diminishes the aggregate of profits. Thus, suppose the accumulation should
be £1,000,000, and the profits 7%, the whole amount of profits will be
£70,000; now if an addition of £100,000 capital be made to the million, and
profits should fall to 6%, £66,000 or a diminution of £4,000 will be received
by the owners of the stock, although the whole amount of stock will be
increased from £1,000,000 to £1 ,100,000.” — Ricardo, Political Economy,
Chap. VI (Works, ed. by MacCulloch, 1852, pp. 68-69). — The fact is, that
the assumption has here been made that the capital increases from 1,000,000
to 1,100,000, that is, by 10%, while the rate of profit falls from 7 to 6, hence
by 14*/j%. Hlnc iliac lacrlmae! [Publius, Terence, A ndria, Act I, Scene 1. —
Ed. ]

* K. Marx, Thcoricn dbcr den Mehrwert. K. Marx/F. Engels, Werke,
Band 26, Teil 2,- S. 435-66, 541-43.— Ed.

THE LAW AS SUCH

225

ated accumulation of capital and, consequently, an increase in
the absolute magnitude, or total mass, of the surplus-labour
(surplus-value, profit) appropriated by it. Just as everything
appears reversed in competition, and thus in the consciousness
of the agents of competition, so also this law, this inner and
necessary connection between two seeming contradictions. It
is evident that within the proportions indicated above a capitalist
disposing of a large capital will receive a larger mass of profit
than a small capitalist making seemingly high profits. Even
a cursory examination of competition shows, furthermore, that
under certain circumstances, when the greater capitalist wishes
to make room for himself on the market, and to crowd out the
smaller ones, as happens in times of crises, he makes practical
use of this, i.e., he deliberately lowers his rate of profit in order
to drive the smaller ones to the wall. Merchant’s capital, which
we shall describe in detail later, also notably exhibits phenomena
which appear to attribute a fall in profit to an expansion of
business, and thus of capital. The scientific expression for this
false conception will be given later. Similar superficial observa¬
tions result from a comparison of rates of profit in individual
lines of business, distinguished either as subject to free compe¬
tition, or to monopoly. The utterly shallow conception existing
in the minds of the agents of competition is found in Roscher,
namely, that a reduction in the rate of profit is “more prudent
and humane”.* The fall in the rate of profit appears in this case
as an effect of an increase in capital and of the concomitant Cal¬
culation of the capitalist that the mass of profits pocketed by
him will be greater at a smaller rate of profit. This entire concep¬
tion (with the exception of Adam Smith’s, which we shall mention
later)** rests on an utter misapprehension of what the general
rate of profit is, and on the crude notion that prices are actually
determined by adding a more or less arbitrary quota of profit
to the true value of commodities. Crude as these ideas are, they
arise necessarily out of the inverted aspect which the immanent
laws of capitalist production represent in competition.

The law that a fall in the rate of profit due to the development
of productiveness is accompanied by an increase in the mass of

* Roscher, Die Grundlage der N ationa'ldkonomie, 3 AuDage, 1858,
§ 108, S. 192.— Ed.

** K. Marx, Theorien iber den Mehrwert. K. Marx/F. Engels, Werke,
Band 26, Teil 2, S. 214-28.— Ed.

226

TENDENCY OF RATE OF PROFIT TO FALL

profit, also expresses itself in the fact that a fall in the price of
commodities produced by a capital is accompanied by a relative
increase of the masses of profit contained in them and realised
by their sale.

Since the development of the productiveness and the correspond¬
ingly higher composition of capital sets in motion an ever-increas¬
ing quantity of means of production through a constantly decreasing
quantity of labour, every aliquot part of the total product,
i.e., every single commodity, or each particular lot of commodi¬
ties in the total mass of products, absorbs less living labour,
and also contains less materialised labour, both in the deprecia¬
tion of the fixed capital applied and in the raw and auxiliary
materials consumed. Hence every single commodity contains a
smaller sum of labour materialised in means of production and
of labour newly added during production. This causes the price
of the individual commodity to fall. But the mass of profits
contained in the individual commodities may nevertheless increase
if the rate of the absolute or relative surplus-value grows. The
commodity contains less newly added labour, but its unpaid portion
grows in relation to its paid portion. However, this is the case
only within certain limits. With the absolute amount of living
labour newly incorporated in individual commodities decreasing
enormously as production develops, the absolute mass of unpaid
labour contained in them will likewise decrease, however much
it may have grown as compared to the paid portion. The mass
of profit on each individual commodity will shrink considerably
with the development of the productiveness of labour, in spite
of a growth in the rate of surplus-value. And this reduction,
just as the fall in the rate of profit, is only delayed by the cheapen¬
ing of the elements of constant capital and by the other circum¬
stances set forth in the first part of this book, which increase
the rate of profit at a given, or even falling, rate of surplus-
value.

That the price of individual commodities whose sum makes
up the total product of capital falls, means simply that a certain
quantity of labour is realised in a larger quantity of commodi¬
ties, so that each individual commodity contains less labour
than before. This is the case even if the price of one part of
constant capital, such as raw material, etc., should rise. Outside
of a few cases (for instance, if the productiveness of labour
uniformly cheapens all elements of the constant, and the variable,
capital), the rate of profit will fall, in spite of the higher rate
of surplus-value, 1) because even a larger unpaid portion of the

THE LAW AS SUCH

227

smaller total amount of newly added labour is smaller than
a smaller aliquot unpaid portion of the former larger amount,
and 2) because the higher composition of capital is expressed
in the individual commodity by the fact that the portion of its
value in which newly added labour is materialised decreases in
relation to the portion of its value which represents raw and auxil¬
iary material, and the wear and tear of fixed capital. This change
in the proportion of the various component parts in the price
of individual commodities, i.e., the decrease of that portion of
the price in which newly added living labour is materialised,
and the increase of that portion of it in which formerly mate¬
rialised labour is represented, is the form which expresses the
decrease of the variable in relation to the constant capital through
the price of the individual commodities. Just as this decrease
is absolute for a certain amount of capital, say of 100, it is also
absolute for every individual commodity as an aliquot part of
the reproduced capital. However, the rate of profit, if calculated
merely on the elements of the price of an individual commodity,
would be different from what it actually is. And for the
following reason:

[The rate of profit is calculated on the total capital invested,
but for a definite time, actually a year. The rate of profit is the
ratio of the surplus-value, or profit, produced and realised in a
year, to the total capital calculated in per cent. It is, therefore,
not necessarily equal to a rate of profit calculated for the period
of turnover of the invested capital rather than for a year. It is
only if the capital is turned over exactly in one year that the
two coincide.

On the other hand, the profit made in the course of a year is
merely the sum of profits on commodities produced and sold
during that same year. Now, if we calculate the profit on the cost-

price of commodities, we obtain a rate of profit = -£- in which

p stands for the profit realised during one year, and k for the
sum of the cost-prices of commodities produced and sold within

the same period. It is evident that this rate of profit will not

coincide with the actual rate of profit mass of profit divided

by total capital, unless k = C, that is, unless the capital is turned
over in exactly one year.

Let us take three different conditions of an industrial capital.

I. A capital of £8,000 produces and sells annually 5,000 pieces
of a commodity at 30s. per piece, thus making an annual turnover

228

TENDENCY OF RATE OF PROFIT TO FALL

of £7,500. It makes a profit of 10s. on each piece, or £2,500 per
year. Every piece, then, contains 20s. advanced capital and

10s. profit, so that the rate of profit per piece is *5 = 50%. The
turned-over sum of £7,500 contains £5,000 advanced capital and
£2,500 profit. Rate of profit per turnover, likewise -= 50%.

But calculated on the total capital the rate of profit

=31V«%.

II. The capital rises to £10,000. Owing to increased productiv¬
ity of labour it is able to produce annually 10,000 pieces of the
commodity at a cost-price of 20s. per piece. Suppose, the commod¬
ity is sold at a profit of 4s., hence at 24s. per piece. In that case
the price of the annual product = £12,000, of which £10,000 is

advanced capital and £2,000 is profit. The rate of profit [r — ^o

per piece, and ^ for the annual turnover, or in both cases=
= 20%. And since the total capital is equal to the sum of the
cost-prices, namely £10,000, it follows that the actual rate of

profit, is in this case also 20%.

III. Let the capital rise to £15,000 owing to a constant growth
of the productiveness of labour, and let it annually produce
30,000 pieces of the commodity at a cost-price of 13s. per piece,
each piece being sold at a profit of 2s., or at 15s. The annual
turnover therefore = 30,000 X 15s. = £22,500, of which £19,500 is

advanced capital and £3,000 profit. The rate of profit then =

3,000

13 19.500

.!5V„%. But

We see, therefore, that only in case II, where the turned-over
capital-value is equal to the total capital, the rate of profit per
piece, or per total amount of turnover, is the same as the rate of
profit calculated on the total capital. In case I, in which the
amount of the turnover is smaller than the total capital, the
rate of profit calculated on the cost-price of the commodity is
higher; and in case III, in which the total capital is smaller
than the amount of the turnover, it is lower than the actual
rate calculated on the total capital. This is a general rule.

In commercial practice, the turnover is generally calculated
inaccurately. It is assumed that the capital has been turned over
once as soon as the sum of the realised commodity-prices equals

THE LAW AS SUCH

229

the sum of the invested total capital. But the capital can com¬
plete one whole turnover only when the sum of the cost-prices
of the realised commodities equals the sum of the total capital. —
F. E. 1

This again shows how important it is in capitalist production
to regard individual commodities, or the commodity-product of
a certain period, as products of advanced capital and in relation
to the total capital which produces them, rather than in isola¬
tion, by themselves, as mere commodities.

The rale of profit must be calculated by measuring the mass of
produced and realised surplus-value not only in relation to the
consumed portion of capital reappearing in the commodities, but
also to this part plus that portion of unconsumed but applied
capital which continues to operate in production. However, the
mass of profit cannot be equal to anything but the mass of profit
or surplus-value, contained in the commodities themselves, and
to be realised by their sale.

If the productivity of industry increases, the price of indi¬
vidual commodities falls. There is less labour in them, less paid
and unpaid labour. Suppose, the same labour produces, say,
triple its former product. Then 2/s less labour yields individual
product. And since profit can make up but a portion of the amount
of labour contained in an individual commodity, the mass of
profit in the individual commodity must decrease, and this
takes place within certain limits, even if the rate of surplus-
value should rise. In any case, the mass of profit on the total
product does not fall below the original mass of profit so long as
the capital employs the same number of labourers at the same
degree of exploitation. (This may also occur if fewer labourers
are employed at a higher rate of exploitation.) For the mass
of profit on the individual product decreases proportionately to
the increase in the number of products. The mass of profit remains
the same, but it is distributed differently over the total amount
of commodities. Nor does this alter the distribution between
the labourers and capitalists of the amount of value created
by newly added labour. The mass of profit cannot increase so
long as the same amount of labour is employed, unless the unpaid
surplus-labour increases, or, should intensity of exploitation
remain the same, unless the number of labourers grows. Or,
both these causes may combine to produce this result. In all
these cases — which, however, in accordance with our assump¬
tion, presuppose an increase of constant capital as compared to
variable, and an increase in the magnitude of total capital —

230

TENDENCY OF RATE OF PROFIT TO FALL

the individual commodity contains a smaller mass of profit and
the rate of profit falls even if calculated on the individual commod¬
ity. A given quantity of newly added labour materialises in a
larger quantity of commodities. The price of the individual
commodity falls. Considered abstractly the rate of profit may
remain the same, even though the price of the individual commod¬
ity may fall as 9 result of greater productiveness of labour and a
simultaneous increase in the number of this cheaper commodity
if, for instance, the increase in productiveness of labour acts
uniformly and simultaneously on all the elements of the com¬
modity, so that its total price falls in the same proportion in
which the productivity of labour increases, while, on the other
hand, the mutual relation of the different elements of the price
of the commodity remains the same. The rate of profit could
even rise if a rise in the rate of surplus-value were accompanied
by a substantial reduction in the value of the elements of con¬
stant, and particularly of fixed, capital. But in reality, as wc
have seen, the rate of profit will fall in the long run. In no case
does a fall in the price of any individual commodity by itself
give a clue to the rate of profit. Everything depends on the
magnitude of the total capital invested in its production. For
instance, if the price of one yard of fabric falls from 3s. to l2/3s. ,
if we know that before this price reduction it contained l2/3s.
constant capital, yarn, etc., 2/3s. wages, and 2/3s. profit, while
after the reduction it contains Is. constant capital, 1/3s. wages,
and 1/Ss. profit, we cannot tell if the rate of profit has remained
the same or not. This depends on whether, and by how much,
the advanced total capital has increased, and how many yards
more it produces in a given time.

The phenomenon, springing from the nature of the capitalist
mode of production, that increasing productivity of labour
implies a drop in the price of the individual commodity, or of
a certain mass of commodities, an increase in the number of
commodities, a reduction in the mass of profit on the individual
commodity and in the rate of profit on the aggregate of commod¬
ities, and an increase in the mass of profit on the total quantity
of commodities — this phenomenon appears on the surface only
in a reduction of the mass of profit on the individual commodity,
a fall in its price, an increase in the mass of profit on the aug¬
mented total number of commodities produced by the total
social capital or an individual capitalist. It then appears as
if the capitalist adds less profit to the price of the individual
commodity of his own free will, and makes up for it through

THE LAW AS SUCH

231

the greater number of commodities he produces. This conception
rests upon the notion of profit upon alienation, which, in its
turn, is deduced from the conception of merchant capital.

We have previously seen in Book I (4 and 7 Abschnitt)* that
the mass of commodities growing along with the productivity of
labour and the cheapening of the individual commodity as such
(as long as these commodities do not enter the price of labour-
power as determinants) — that this does not affect the proportion
between paid and unpaid labour in the individual commodity,
in spite of the falling price.

Since all things appear distorted, namely, reversed in
competition, the individual capitalist may imagine: 1) that he is
reducing his profit on the individual commodity by cutting its
price, but still making a greater profit by selling a larger quan¬
tity of commodities; 2) that he fixes the price of the individual
commodities and that he determines the price of the total product
by multiplication, while the original process is really one of
division (see Book I, Kap. X, S. 281**), and multiplication is
only correct secondarily, since it is based on that division. The
vulgar economist does practically no more than translate the
singular concepts of the capitalists, who are in the thrall of com¬
petition, into a seemingly more theoretical and generalised lan¬
guage, and attempt to substantiate the justice of those conceptions.

The fall in commodity-prices and the rise in the mass of profit
on the augmented mass of these cheapened commodities is, in
fact, but another expression for the law of the falling rate of
profit attended by a simultaneously increasing mass of profit.

The analysis of how far a falling rate of profit may coincide
with rising prices no more belongs here than that of the point
previously discussed in Book I (S. 280-81),*** concerning relative
surplus-value. A capitalist working with improved but not as
yet generally adopted methods of production sells below the
market-price, but above his individual price of production; his
rate of profit rises until competition levels it out. During this
equalisation period the second requisite, expansion of the invested
capital, makes its appearance. According to the degree of this
expansion the capitalist will be able to employ a part of his
former labourers, actually perhaps all of them, or even more,
under the new conditions, and hence to produce the same, or
a greater, mass of profit.

* English edition: Parts IV and VII. — Ed.

** English edition: Ch. XII, pp. 316-17.— Ed.

*** English edition: pp. 316-17. — Ed.

CHAPTER XIV

COUNTERACTING INFLUENCES

If we consider the enormous development of the productive
forces of social labour in the last 30 years alone as compared
with all preceding periods; if we consider, in particular, the
enormous mass of fixed capital, aside from the actual machinery,
which goes into the process of social production as a whole, then
the difficulty which has hitherto troubled the economist, namely
to explain the falling rate of profit, gives place to its opposite,
namely to explain why this fall is not greater and more rapid.
There must be some counteracting influences at work, which
cross and annul the effect of the general law, and which give
it merely the characteristic of a tendency, for which reason we
have referred to the fall of the general rate of profit as a tendency
to fall.

The following are the most general counterbalancing forces:

I. INCREASING INTENSITY OF EXPLOITATION

The degree of exploitation of labour, the appropriation of
surplus-labour and surplus-value, is raised notably by lengthen¬
ing the working-day and intensifying labour. These two points
have been comprehensively treated in Book I as incidental to
the production of absolute and relative surplus-value. There are
many ways of intensifying labour which imply an increase of
constant, as compared to variable, capital, and hence a fall in
the rate of profit, such as compelling a labourer to operate a
larger number of machines. In such cases — and in most proce¬
dures serving the production of relative surplus-values — the
same causes which increase the rate of surplus-value, may also,
from the standpoint of given quantities of invested total capital,

COUNTERACTING INFLUENCES

233

involve a fall in the mass of surplus-value. But there are other
aspects of intensification, such as the greater velocities of machin¬
ery, which consume more raw material in the same time, but,
so far as the fixed capital is concerned, wear out the machinery
so much faster, and yet do not in any way affect the relation
of its value to the price of the labour which sets it in motion.
But notably, it is prolongation of the working-day, this invention
of modern industry, which increases the mass of appropriated
surplus-labour without essentially altering the proportion of
the employed labour-power to the constant capital set in motion
by it, and which rather tends to reduce this capital relatively.
Moreover, it has already been demonstrated — and this constitutes
the real secret of the tendency of the rate of profit to fall — that
the manipulations to produce relative surplus-value amount, on
the whole, to transforming as much as possible of a certain quan¬
tity of labour into surplus-value, on the one hand, and employing
as little labour as possible in proportion to the invested capital,
on the other, so that the same reasons which permit raising the
intensity of exploitation rule out exploiting the same quantity
of labour as before by the same capital. These are the counteract¬
ing tendencies, which, while effecting a rise in the rate of surplus-
value, also tend to decrease the mass of surplus-value, and hence
the rate of profit produced by a certain capital. Mention should
also be made here of the widespread introduction of female and
child labour, in so far as the whole family must now perform
more surplus-labour for capital than before, even when the total
amount of their wages increases, which is by no means always
the case. — Everything that promotes the production of relative
surplus-value by mere improvement in methods, as in agricul¬
ture, without altering the magnitude of the invested capital,
has the same effect. The constant capital, it is true, does not, in
such cases, increase in relation to the variable, inasmuch as we
regard the variable capital as an index of the amount of labour-
power employed, but the mass of the product does increase in
proportion to the labour-power employed. The same occurs,
if the productiveness of labour (no matter, whether its product
goes into the labourer’s consumption or into the elements of
constant capital) is freed from hindrances in communications,
from arbitrary or other restrictions which have become
obstacles in the course of time; from fetters of all kinds, without
directly affecting the ratio of variable to constant capital.

It might be asked whether the factors that check the fall of the
rate of profit, but that always hasten its fall in the last analysis,

234

TENDENCY OF RATE OF PROFIT TO FALL

whether these include the temporary, but always recurring,
elevations in surplus-value above the general level, which keep
occurring now in this and now in that line of production redound¬
ing to the benefit of those individual capitalists, who make use
of inventions, etc., before these are introduced elsewhere. This
question must be answered in the affirmative.

The mass of surplus-value produced by a capital of a given
magnitude is the product of two factors — the rate of surplus-
value multiplied by the number of labourers employed at this
rate. At a given rate of surplus-value it therefore depends on the
number of labourers, and it depends on the rate of surplus-value
when the number of labourers is given. Generally, therefore,
it depends on the composite ratio of the absolute magnitudes
of the variable capital and the rate of surplus-value. Now we
have seen that, on the average, the same factors which raise
the rate of relative surplus-value lower the mass of the employed
labour-power. It is evident, however, that this will occur to a
greater or lesser extent, depending on the definite proportion in
which this conflicting movement obtains, and that the tendency
towards a reduction in the rate of profit is notably weakened
by a rise in the rate of absolute surplus-value, which originates
with the lengthening of the working-day.

We saw in the case of the rate of profit that a drop in the rate
was generally accompanied by an increase in the mass of profit,
due to the increasing mass of total capital employed. From the
standpoint of the total variable capital of society, the surplus-
value it has produced is equal to the profit it has produced.
Both the absolute mass and the rate of surplus-value have
increased; the one because the quantity of labour-power employed
by society has grown, and the other, because the intensity of
exploitation of this labour-power has increased. But in the case
of a capital of a given magnitude, e.g., 100, the rate of surplus-
value may increase, while the average mass may decrease; for
the rate is determined by the proportion, in which the variable
capital produces value, while the mass is determined by the
proportion of variable capital to the total capital.

The rise in the rate of surplus-value is a factor which deter¬
mines the mass of surplus-value, and hence also the rate of profit,
for it takes place especially under conditions, in which, as we
have previously seen, the constant capital is either not increased
at all, or not proportionately increased, in relation to the variable
capital. This factor does not abolish the general law. But it causes
that law to act rather as a tendency, i.e., as a law whose absolute

COUNTERACTING INFLUENCES

235

action is checked, retarded, and weakened, by counteracting
circumstances. But since the same influences which raise the
rate of surplus-value (even a lengthening of the working-time
is a result of large-scale industry) tend to decrease the labour-
power employed by a certain capital, it follows that they also
tend to reduce the rate of profit and to retard this reduction.
If one labourer is compelled to perform as much labour as would
rationally be performed by at least two, and if this is done under
circumstances in which this one labourer can replace three, then
this one labourer will perform as much surplus-labour as was
formerly performed by two, and the rate of surplus-value will
have risen accordingly. But he will not perform as much as
three had performed, and the mass of surplus-value will have
decreased accordingly. But this reduction in mass will be compen¬
sated, or limited, by the rise in the rate of surplus-value. If
the entire population is employed at a higher rate of surplus-
value, the mass of surplus-value will increase, in spite of the
population remaining the same. It will increase still more if
the population increases. And although this is tied up with a
relative reduction of the number of employed labourers in
proportion to the magnitude of the total capital, this reduction
is moderated, or checked, by the rise in the rate of surplus-
value.

Before leaving this point, it is to be emphasised once more
that with a capital of a given magnitude the rate of surplus-
value may rise, while its mass is decreasing, and vice versa.
The mass of surplus-value is equal to the rate multiplied by the
number of labourers; however, the rate is never calculated on
the total, but -only on the variable capital, actually only for
every working-day. On the other hand, with a given magnitude
of capital-value, the rate of profit can neither rise nor fall without
the mass of surplus- value also rising or falling.

II. DEPRESSION OF WAGES BELOW THE VALUE
OF LABOUR-POWER

This is mentioned here only empirically, since, like many
other things which might be enumerated, it has nothing to do
with the general analysis of capital, but belongs in an analysis
of competition, which is not presented in this work. However,
it is one of the most important factors checking the tendency of
the rate of profit tq fall.

236

TENDENCY OP RATE OP PROPIT TO FALL

III. CHEAPENING OF ELEMENTS OF CONSTANT CAPITAL

Everything said in Part I of this book about factors which
raise the rate of profit while the rate of surplus-value remains
the same, or regardless of the rate of surplus-value, belongs
here. Hence also, with respect to the total capital, that the value
of the constant capital does not increase in the same proportion
as its material volume. For instance, the quantity of cotton
worked up by a single European spinner in a modern factory
has grown tremendously compared to the quantity formerly
worked up by a European spinner with a spinning-wheel. Yet
the value of the worked-up cotton has not grown in the same
proportion as its mass. The same applies to machinery and other
fixed capital. In short, the same development which increases
the mass of the constant capital in relation to the variable reduces
the value of its elements as a result of the increased productivity
of labour, and therefore prevents the value of constant capital,
although it continually increases, from increasing at the same
rate as its material volume, i.e., the material volume of the
means of production set in motion by the same amount of labour-
power. In isolated cases the mass of the elements of constant
capital may even increase, while its value remains the same,
or falls.

The foregoing is bound up with the depreciation of existing
capital (that is, of its material elements), which occurs with the
development of industry. This is another continually operating
factor which checks the fall of the rate of profit, although it
may under certain circumstances encroach on the mass of profit
by reducing the mass of the capital yielding a profit. This again
shows that the same influences which tend to make the rate of
profit fall, also moderate the effects of this tendency.

IV. RELATIVE OVER POPULATION

Its propagation is inseparable from, and hastened by, the
development of the productivity of labour as expressed by a fall
in the rate of profit. The relative over-population becomes so
much more apparent in a country, the more the capitalist mode
of production is developed in it. This, again, is the reason why,
on the one hand, the more or less imperfect subordination of
labour to capital continues in many branches of production,
and continues longer than seems at first glance compatible with
the general stage of development. This is due to the cheapness

COUNTERACTING INFLUENCES

237

and abundance of disposable or unemployed wage-labourers, and
to the greater resistance, which some branches of production,
by their very nature, render to the transformation of manual
work into machine production. On the other hand, new lines
of production are opened up, especially for the production of
luxuries, and it is these that take as their basis this relative
over-population, often set free in other lines of production through
the increase of their constant capital. These new lines start out pre¬
dominantly with living labour, and by degrees pass through tho
same evolution as the other lines of production. In either case the
variable capital makes up a considerable portion of the total
capital and wages are below the average, so that both the
rate and mass of surplus-value in these lines of production are
unusually high. Since the general rate of profit is formed by
levelling the rates of profit in the individual branches of produc¬
tion, however, the same factor which brings about the tendency
in the Tate of profit to fall, again produces a counterbalance to
this tendency and more or less paralyses its effects.

V. FOREIGN TRADE

Since foreign trade partly cheapens the elements of constant
capital, and partly the necessities of life for which the variable
capital is exchanged, it tends to raise the rate of profit by increas¬
ing the rate of surplus-value and lowering the value of constant
capital. It generally acts in this direction by permitting an ex¬
pansion of the scale of production. It thereby hastens the process
of accumulation, on the one hand, but causes the variable capital
to shrink in relation to the constant capital, on the other, and
thus hastens a fall in the rate of profit. In the same way, the
expansion of foreign trade, although the basis of the capitalist
mode of production in its infancy, has become its own product,
however, with the further progress of the capitalist mode of
production, through the innate necessity of this mode of produc¬
tion., its need for an ever-expanding market. Here we see onco
more the dual nature of this effect. (Ricardo has entirely over¬
looked this side of foreign trade.*)

Another question— really beyond tho scope of our analysis
because of its special nature — is this: Is the general rate of profit
raised by the higher rate of profit produced by capital invested in
foreign, and particularly colonial, trade?

* D. Ricardo, On the Principles of Political Economy, and Taxation,
Third edition, London, 1821, Ch. VII.— Ed.

238

TENDENCY OF RATE OF PROFIT TO FALL

Capitals invested in foreign trade can yield a higher rate of
profit, because, in the first place, there is competition with com¬
modities produced in other countries with inferior production
facilities, so that the more advanced country sells its goods above
their value even though cheaper than the competing countries.
In so far as the labour of the more advanced country is here real¬
ised as labour of a higher specific weight, the rate of profit rises,
because labour which has not been paid as being of a higher
quality is sold as such. The same may obtain in relation to the
country, to which commodities are exported and to that from
which commodities are imported; namely, the latter may offer
more materialised labour in kind than it receives, and yet thereby
receive commodities cheaper than it could produce them. Just
as a manufacturer who employs a new invention before it becomes
generally used, undersells his competitors and yet sells his com¬
modity above its individual value, that is, realises the specifi¬
cally higher productiveness of the labour he employs as surplus-
labour. He thus secures a surplus-profit. As concerns capitals
invested in colonies, etc., on the other hand, they may yield
higher rates of profit for the simple reason that the rate of profit
is higher there due to backward development, and likewise the
exploitation of labour, because of the use of slaves, coolies, etc.
Why should not these higher rates of profit, realised by capitals
invested in certain lines and sent home by them, enter into the
equalisation of the general rate of profit and thus tend, pro tanto,
to raise it, unless it is the monopolies that stand in the way.3®
There is so much less reason for it, since these spheres of invest¬
ment of capital are subject to the laws of free competition. What
Ricardo fancies is mainly this: with the higher prices realised
abroad commodities are bought there in return and sent home.
These commodities are thus sold on the home market, which fact
can at best be but a temporary extra disadvantage of these fa¬
voured spheres of production over others. This illusion falls away
as soon as it is divested of its money-form. The favoured country
recovers more labour in exchange for less labour, although this
difference, this excess is pocketed, as in any exchange between
labour and capital, by a certain class. Since the rate of profit
is higher, therefore, because it is generally higher in a colonial

*' Adam Smith was right in this respect, contrary to Ricardo, who said :
“They contend that the equality of profits will be brought about by the gen¬
eral rise of profits; and 1 am of the opinion that the profits of the favoured
trade will speedily submit to the general level. ” (Works, ed. by MacCulloch,
p. 73.)

COUNTERACTING INFLUENCES

239

country, it may, provided natural conditions are favourable,
go hand in hand with low commodity-prices. A levelling takes
place hut not a levelling to the old level, as Ricardo feels.

This same foreign trade develops the capitalist mode of
production in the home country, which implies the decrease of
variable capital in relation to constant, and, on the other hand,
causes over-production in respect to foreign markets, so that
in the long run it again has an opposite effect.

We have thus seen in a general way that the same influences
which produce a tendency in the general rate of profit to fall, also
call forth counter-effects, which hamper, retard, and partly para¬
lyse this fall. The latter do not do away with the law, but impair
its effect. Otherwise, it would not be the fall of the general rate of
profit, but rather its relative slowness, that would be incompre¬
hensible. Thus, the law acts only as a tendency. And it is only
under certain circumstances and only after long periods that its
effects become strikingly pronounced.

Before we go on, in order to avoid misunderstandings, we
should recall two, repeatedly treated, points.

First: The same process which brings about a cheapening of
commodities in the course of the development of the capitalist
mode of production, causes a change in the organic composition
of the social capital invested in the production of commodities,
and consequently lowers the rate of profit. We must be careful,
therefore, not to identify the reduction in the relative cost of
an individual commodity, including that portion of it which
represents wear and tear of machinery, with the rise in the value
of the constant in relation to variable capital, although, con¬
versely, every reduction in the relative cost of the constant capital
assuming the volume of its material elements remains the same,
or increases, tends to raise the rate of profit, i.e., to reduce pro
tanto the value of the constant capital in relation to the shrink¬
ing proportions of the employed variable capital.

Second: The fact that the newly added living labour contained
in the individual commodities, which taken together make up the
product of capital, decreases in relation to the materials they con¬
tain and the means of labour consumed by them; the fact, there¬
fore, that an ever-decreasing quantity of additional living labour
is materialised in them, because their production requires less
labour with the development of the social productiveness — this
fact does not affect the ratio, in which the living labour contained
in the commodities breaks up into paid and unpaid labour. Quite
the contrary. Although the total quantity of additional living

240

TENDENCY OF RATE OF PROFIT TO FALL

labour contained in the commodities decreases, the unpaid portion
increases in relation to the paid portion, either by an absolute or
a relative shrinking of the paid portion; for the same mode of
production which reduces the total quantity of additional living
labour in a commodity is accompanied by a rise in the absolute
and relative surplus-value.- The tendency of the rate of profit
to fall is bound up with a tendency of the rate of surplus-value
to rise, hence with a tendency for the rate of labour exploitation
to rise. Nothing is more absurd, for this reason, than to explain
the fall in the rate of profit by a rise in the rate of wages, although
this may be the case by way of an exception. Statistics is
not able to make actual analyses of the rates of wages in different
epochs and countries, until the conditions which shape the rate
of profit are thoroughly understood. The rate of profit does not
fall because labour becomes less productive, but because it be¬
comes more productive. Both the rise in the rate of surplus-value
and the fall in the rate of profit are but specific forms through
which growing productivity of labour is expressed under capitalism .

VI. THE INCREASE OF STOCK CAPITAL

The foregoing five points may still be supplemented by the
following, which, however, cannot be more fully treated for the
present. With the progress of capitalist production, which goes
hand in hand with accelerated accumulation, a portion of capital
is calculated and applied only as interest-bearing capital. Not
in the sense in which every capitalist who lends out capital is
satisfied with interest, while the industrial capitalist pockets
the investor’s profit. This has no bearing on the level of the gener¬
al rate of profit, because for the latter profit = interest+profit
of all kinds+ground-rent, the division into these particular cate¬
gories being immaterial to it. But in the sense that these capitals,
although invested in large productive enterprises, yield only
large or small amounts of interest, so-called dividends, after all
costs have been deducted. In railways, for instance. These do not
therefore go into levelling the general rate of profit, because they
yield a lower than average rate of profit. If they did enter into
it, the general rate of profit would fall much lower. Theoretically,
they may be included in the calculation, and the result would
then be a lower rate of profit than the seemingly existing rate,
which is decisive for the capitalists; it would be lower, because
the constant capital particularly in these enterprises is largest
in its relation to the variable capital.

CHAPTER XV

EXPOSITION OF THE INTERNAL CONTRADICTIONS
OF THE LAW

I. GENERAL

We have seen in the first part of this book that the rate of profit
expresses the rate of surplus-value always lower than it actually
is. We have just seen that even a rising rate of surplus-value has a
tendency to express itself in a falling rate of profit. The rate of
profit would equal the rate of surplus-value only if c=0, i.e., if
the total capital were paid out in wages. A falling rate of profit
does not express a falling rate of surplus-value, unless the propor¬
tion of the value of the constant capital to the quantity of labour-
power which sets it in motion remains unchanged or the amount
of labour-power increases in relation to the value of the constant
capital.

On the plea of analysing the rate of profit, Ricardo actually
analyses the rate of surplus-value alone, and this only on the
assumption that the working-day is intensively and extensively
a constant magnitude.

A fall in the rate of profit and accelerated accumulation are
different expressions of the same process only in so far as both
reflect the development of productiveness. Accumulation, in turn,
hastens the fall of the rate of profit, inasmuch as it implies
concentration of labour on a large scale, and thus a higher compo¬
sition of capital. On the other hand, a fall in the rate of profit
again hastens the concentration of capital and its centralisation
through expropriation of minor capitalists, the few direct
producers who still have anything left to be expropriated. This
accelerates accumulation with regard to mass, although the rate
of accumulation falls with the rate of profit.

On the other hand, the rate of self-expansion of the total cap¬
ital, or the rate of profit, being the goad of capitalist production
(just as self-expansion of capital is its only purpose), its fall
checks the formation of new independent capitals and thus
appears as a threat to the development of the capitalist production

242

TENDENCY OF RATE OF PROFIT TO FALL

process. It breeds over-production, speculation, crises, and surplus-
capital alongside surplus-population. Those economists, therefore,
who, like Ricardo, regard the capitalist mode of production
as absolute, feel at this point that it creates a barrier itself,
and for this reason attribute the barrier to Nature (in the theory
of rent), not to production. But the main thing about their horror
of the falling rate of profit is the feeling that capitalist production
meets in the development of its productive forces a barrier which
has nothing to do with the production of wealth as such; and
this peculiar barrier testifies to the limitations and to the merely
historical, transitory character of the capitalist mode of produc¬
tion; testifies that for the production of wealth, it is not an ab¬
solute mode, moreover, that at a certain stage it rather conflicts
with its further development.

True, Ricardo and his school considered only industrial profit,
which includes interest. But the rate of ground-rent likewise has a
tendency to fall, although its absolute mass increases, and may
also increase proportionately more than industrial profit. (See Ed.
West,* who developed the law of ground-rent before Ricardo.) If
we consider the total social capital C, and use px for the industrial
profit that remains after deducting interest and ground-rent, i for

interest, and r for ground-rent, then s- = -2- = P‘~r~i+r = Pl -j-

' - * . * - L

-jr -j- We have seen that while s, the total amount of surplus-
value, is continually increasing in the course of capitalist develop-
ment, — • is just as steadily declining, because C grows still more
rapidly than s. Therefore it is by no means a contradiction for plt
i, and r to be steadily increasing, each individually, while

as well as and should each by itself be steadily shrink¬

ing, or that pt should increase in relation to i, or r in relation to
plt or to pj and i. With a rising total surplus-value or profit s=p,

and a simultaneously falling rate of profit the propor¬

tions of the parts plt i, and r, which make up s=p, may change
at will within the limits set by the total amount of s without

thereby affecting the magnitude of s or~.

* [E. West] Essay on the Application of Capital to Land , London,
181.).— Ed.

INTERNAL CONTRADICTIONS OF THE LAW

243

The mutual variation of plt i, and r is merely a varying distribu¬
tion of s among different classes. Consequently, -£, -£ or£, the

rate of individual industrial profit, the rate of interest, and the
ratio of ground-rent to the total capital, may rise in relation to one

another, while the general rate of profit, falls. The only

^ S

condition is that the sum of all three = If the rate of profit falls

from 50% to 25%, because the composition of a certain capital with,
say, a rate of surplus-value = 100% has changed from 50c-)-50, to
75c+25t, then a capital of 1,000 will yield a profit of 500 in the
first case, and in the second a capital of 4,000 will yield a profit
of 1,000. We see that s or p have doubled, while p' has fallen by
one-half. And if that 50% was formerly divided into 20 profit,

10 interest, and 20 rent, then -£-=20%, £-=10%, and -i- = 20%.
If the proportions had remained the same after the change from
50% to 25%, then -£-=10%, £ =5%, and £=10%. If, however, £
should fall to 8% and £ to 4%, then £ would rise to 13%. The

relative magnitude of r would have risen as against p, and i, while
p would have remained the same. Under both assumptions, the
sum of pj, i, and r would have increased, because produced by a
capital four times as large. Furthermore, Ricardo's assumption
that originally industrial profit (plus interest) contains the entire
surplus-value is historically and logically false. It is rather the
progress of capitalist production which 1) gives the whole profit
directly to the industrial and commercial capitalists for further
distribution, and 2) reduces rent to the excess over the profit. On
this capitalist basis, again, the rent grows, being a portion of
profit (i.e., of the surplus-value viewed as the product of the
total capital), but not that specific portion of the product, which
the capitalist pockets.

Given the necessary means of production, i.e., a sufficient accu¬
mulation of capital, the creation of surplus-value is only limited
by the labouring population if the rate of surplus-value, i.e., the
intensity of exploitation, is given; and no other limit but the
intensity of exploitation if the labouring population is given.
And the capitalist process of production consists essentially of
the production of surplus-value, represented in the surplus-
product or that aliquot portion of the produced commodities
materialising unpaid labour. It must never be forgotten that
the production of this surplus-value — and the reconversion of a

244

TENDENCY OF RATE OF PROFIT TO FALL

portion of it into capital, or the accumulation, forms an integrate
part of this production of surplus-value — is the immediate pur¬
pose and compelling motive of capitalist production. It will
never do, therefore, to represent capitalist production as some¬
thing which it is not, namely as production whose immediate pur¬
pose is enjoyment or the manufacture of the means of enjoyment
for the capitalist. This would be overlooking its specific character,
which is revealed in all its inner essence.

The creation of this surplus-value makes up the direct process
of production, which, as we have said, has no other limits but
those mentioned above. As soon as all the surplus-labour it was
possible to squeeze out has been embodied in commodities,
surplus-value has been produced. But this production of surplus-
value completes but the first act of the capitalist process of
production — the direct production process. Capital has absorbed
so and so much unpaid labour. With the development of the proc¬
ess, which expresses itself in a drop in the rate of profit, the mass
of surplus-value thus produced swells to immense dimensions.
Now comes the second act of the process. The entire mass of com¬
modities, i.e., the total product, including the portion which
replaces the constant and variable capital, and that representing
surplus-value, must be sold. If this is not done, or done only in
part, or only at prices below the prices of production, the labourer
has been indeed exploited, but his exploitation is not realised
as such for the capitalist, and this can be bound up with a total
or partial failure to realise the surplus-value pressed out of him,
indeed even with the partial or total loss of the capital. The
conditions of direct exploitation, and those of realising it, are
not identical. They diverge not only in place and time, but also
logically. The first are only limited by the productive power of
society, the latter by the proportional relation of the various
branches of production and the consumer power of society. But this
last-named is not determined either by the absolute productive
power, or by the absolute consumer power, but by the consumer
power based on antagonistic conditions of distribution, which
reduce the consumption of the bulk of society to a minimum
varying within more or less narrow limits. It is furthermore re¬
stricted by the tendency to accumulate, the drive to expand capital
and produce surplus-value on an extended scale. This is law for
capitalist production, imposed by incessant revolutions in the
methods of production themselves, by the depreciation of exist¬
ing capital always bound up with them, by the general competi¬
tive struggle and the need to improve production and expand

INTERNAL CONTRADICTIONS OP THE LAW

245

its scale merely as a means of self-preservation and under penalty
of ruin. The market must, therefore, be continually extended, so
that its interrelations and the conditions regulating them assume
more and more the form of a natural law working independently
of the producer, and become ever more uncontrollable. This
internal contradiction seeks to resolve itself through expansion
of the outlying field of production. But the more productiveness
develops, the more it finds itself at variance with the narrow
basis on which the conditions of consumption rest. It is no con¬
tradiction at all on this self-contradictory basis that there should
be an excess of capital simultaneously with a growing surplus
of population. For while a combination of these two would,
indeed, increase the mass of produced surplus-value, it would
at the same time intensify the contradiction between the
conditions under which this surplus-value is produced and those
under which it is realised.

If a certain rate of profit is given, the mass of profit will always
depend on the magnitude of the advanced capital. The accumula¬
tion, however, is then determined by that portion of this mass
which is reconverted into capital. As for this portion, being equal
to the profit minus the revenue consumed by the capitalists, it
will depend not merely on the value of this mass, but also on
the cheapness of the commodities which the capitalist can buy
with it, commodities which pass partly into his consumption,
his revenue, and partly into his constant capital. (Wages are
here assumed to be given.)

The mass of capital set in motion by the labourer, whose value
he preserves by his labour and reproduces in his product, is quite
different from the value which he adds to it. If the mass of the
capital = l,000 and the added labour=100, the reproduced cap-
ital=l,100. If the mass = 100 and the added labour=20, the
reproduced capital = 120. In the first case the rate of profit = 10%,
in the second = 20%. And yet more can be accumulated out of
100 than out of 20. And thus the river of capital rolls on (aside
from its depreciation through increase of the productiveness),
or its accumulation does, not in proportion to the rate of profit,
but in proportion to the impetus it already possesses. So far as
it is based on a high rate of surplus-value, a high rate of profit is
possible when the working-day is very long, although labour is
not highly productive. It is possible, because the wants of the
labourers are very small, hence average wages very low, although
the labour itself is unproductive. The low wages will correspond to
the labourers’ lack of energy. Capital then accumulates slowly, in

9—2494

246

TENDENCY OF RATE OF PROFIT TO FALL

spite of the high rate of profit. Population is stagnant and the
working-time which the product costs, is great, while the wages
paid to the labourer are small.

The rate of profit does not sink because the labourer is exploited
any less, but because generally less labour is employed in propor¬
tion to the employed capital.

If, as shown, a falling rate of profit is bound up with an increase
in the mass of profit, a larger portion of the annual product of
labour is appropriated by the capitalist under the category of
capital (as a replacement for consumed capital) and a relatively
smaller portion under the category of profit. Hence the fantastic
idea of priest Chalmers,* that the less of the annual product is
expended by capitalists as capital, the greater the profits they
pocket. In which case the state church comes to their assistance,
to care for the consumption of the greater part of the surplus-
product, rather than having it used as capital. The preacher
confounds cause with effect. Furthermore, the mass of profit
increases in spite of its slower rate with the growth of the invested
capital. However, this requires a simultaneous concentration
of capital, since the conditions of production then demand em¬
ployment of capital on a larger scale. It also requires its central¬
isation, i.e., the swallowing up of the small capitalists by the
big and their deprivation of capital. It is again but an instance
of separating— raised to the second power — the conditions of
production from the producers to whose number these small
capitalists still belong, since their own labour continues to play
a role in their case. The labour of a capitalist stands altogether
in inverse proportion to the size of his capital, i.e., to the degree
in which he is a capitalist. It is this same severance of the
conditions of production, on the one hand, from the producers, on
the other, that forms the conception of capital. It begins with
primitive accumulation (Buch I, Kap. XXIV**), appears as a
permanent process in the accumulation and concentrati jn of
capital, and expresses itself finally as centralisation of existing
capitals in a few hands and a deprivation of many of their capital
(to which expropriation is now changed). This process would
soon bring about the collapse of capitalist production if it were
not for counteracting tendencies, which have a continuous
decentralising effect alongside the centripetal one.

* Th. Chalmers, On Political Economy in Connexion with the Moral
Stale and Moral Prospects of Society, Second edition, Glasgow, 1832,
p. 88.— Ed.

•* English edition: Part VIII. — Ed.

INTERNAL CONTRADICTIONS OF THE LAW

247

II. CONFLICT BETWEEN EXPANSION OF PRODUCTION
AND PRODUCTION OF SURPLUS-VALUE

The development of the social productiveness of labour is mani¬
fested in two ways: first, in the magnitude of the already produced
productive forces, the value and mass of the conditions of pro¬
duction under which new production is carried on, and in the
absolute magnitude of the already accumulated productive
capital; secondly, in the relative smallness of the portion of total
capital laid out in wages, i.e., in the relatively small quantity of
living labour required for the reproduction and self-expansion
of a given capital, for mass production. This also implies
concentration of capital.

In relation to employed labour-power the development of the
productivity again reveals itself in two ways: First, in the increase
of surplus-labour, i.e., the reduction of the necessary labour-time
required for the reproduction of labour-power. Secondly, in the
decrease of the quantity of labour-power (the number of labourers)
generally employed to set in motion a given capital.

The two movements not only go hand in hand, but mutually
influence one another and are phenomena in which the same law
expresses itself. Yet they affect the rate of profit in opposite ways.
The total mass of profit is equal to the total mass of surplus-value,

the rate of profit — -r — suIP.lljs~value The surplus-value,

r C advanced total capital r

however, as a total, is determined first by its rate, and second by
the mass of labour simultaneously employed at this rate, or, what
amounts to the same, by the magnitude of the variable capital.
One of these factors, the rate of surplus-value, rises, and the other,
the number of labourers, falls (relatively or absolutely). Inas¬
much as the development of the productive forces reduces the
paid portion of employed labour, it raises the surplus-value,
because it raises its rate; but inasmuch as it reduces the total
mass of labour employed by a given capital, it reduces the factor
of the number by which the rate of surplus-value is multiplied
to obtain its mass. Two labourers, each working 12 hours daily,
cannot produce the same mass of surplus-value as 24 who work
only 2 hours, even if they could live on air and hence did not
have to work for themselves at all. In this respect, then, the com¬
pensation of the reduced number of labourers by intensifying
the degree of exploitation has certain insurmountable limits.
It may, for this reason, well check the fall in the rate of profit,
hut cannot prevent it altogether.

248

TENDENCY OF RATE OF PROFIT TO FALL

With the development of the capitalist mode of production,
therefore, the rate of profit falls, while its mass increases with the
growing mass of the capital employed. Given the rate, the absolute
increase in the mass of capital depends on its existing magnitude.
But, on the other hand, if this magnitude is given, the proportion
of its growth, i.e., the rate of its increment, depends on the rate of
profit. The increase in the productiveness (which, moreover, we
repeat, always goes hand in hand with a depreciation of the
available capital) can directly only increase the value of the
existing capita! if by raising the rate of profit it increases that
portion of the value of the annual product which is reconverted
into capital. As concerns the productivity of labour, this can
only occur (since this productivity has nothing direct to do with
the value of the existing capital) by raising the relative surplus-
value, or reducing the value of the constant capital, so that the
commodities which enter either the reproduction of labour-power,
or the elements of constant capital, are cheapened. Both imply
a depreciation of the existing capital, and both go hand in hand
with a reduction of the variable capital in relation to the con¬
stant. Both cause a fall in the rate of profit, and both slow it down.
Furthermore, inasmuch as an increased rate of profit causes a
greater demand for labour, it tends to increase the working
population and thus the material, whose exploitation makes real
capital out of capital.

Indirectly, however, the development of the productivity of la¬
bour contributes to the increase of the value of the existing capital
by increasing the mass and variety of use-values in which the same
exchange-value is represented' and which form the material sub¬
stance, i.e., the material elements of capital, the material objects
making up the constant capital directly, and the variable capital
at least indirectly. More products which may be converted into
capital, whatever their exchange-value, are created with the same
capital and the same labour. These products may serve to absorb
additional labour, hence also additional surplus-labour, and
therefore create additional capital. The amount of Labour which
a capital can command does not depend on its value, but on the
mass of raw and auxiliary materials, machinery and elements
of fixed capital and necessities of life, all of which it comprises,
whatever their value may be. As the mass of the labour employed,
and thus of surplus-labour increases, there is also a growth in
the value of the reproduced capital and in the surplus-value
newly added to it.

These two elements embraced by the process of accumulation,

INTERNAL CONTRADICTIONS OF THE LAW

249

however, are not to be regarded merely as existing side by side in
repose, as Ricardo does. They contain a contradiction which
manifests itself in contradictory tendencies and phenomena. These
antagonistic agencies counteract each other simultaneously.

Alongside the stimulants of an actual increase of the labouring
population, which spring from the increase of the portion of the
total social product serving as capital, there are agencies which
create a merely relative over-population.

Alongside the fall in the rate of profit mass of capitals grows,
and hand in hand with this there occurs a depreciation of existing
capitals which checks the fall and gives an accelerating motion
to the accumulation of capital-values.

Alongside the development of productivity there develops a
higher composition of capital, i.e., the relative decrease of the
ratio of variable to constant capital.

These different influences may at one time operate predomi¬
nantly side by side in space, and at another succeed each other
in time. From time to time the conflict of antagonistic agencies
finds vent in crises. The crises are always but momentary
and forcible solutions of the existing contradictions. They are
violent eruptions which for a time restore the disturbed
equilibrium.

The contradiction, to put it in a very general way, consists
in that the capitalist mode of production involves a tendency
towards absolute development of the productive forces, regard¬
less of the value and surplus-value it contains, and regardless
of the social conditions under which capitalist production takes
place; while, on the other hand, its aim is to preserve the value
of the existing capital and promote its self-expansion to the highest
limit (i.e., to promote an ever more rapid growth of this value).
The specific feature about it is that it uses the existing value of
capital as a means of increasing this value to the utmost. The
methods by which it accomplishes this include the fall of the rate
of profit, depreciation of existing capital, and development of
the productive forces of labour at the expense of already created
productive forces.

The periodical depreciation of existing capital— one of the
means immanent in capitalist production to check the fall of
the rate of profit and hasten accumulation of capital-value
through formation of new capital — disturbs the given conditions,
within which the process of circulation and reproduction of
capital takes place, and is therefore accompanied by sudden
stoppages and crises in the production process.

250 TENDENCY OP RATE OF PROFIT TO FALL

The decrease of variable in relation to constant capital, which
goes hand in hand with the development of the productive forces,
stimulates the growth of the labouring population, while contin¬
ually creating an artificial over-population. The accumulation
of capital in terms of value is slowed down by the falling rate
of profit, to hasten still more the accumulation of use-values,
while this, in its turn, adds new momentum to accumulation
in terms of value.

Capitalist production seeks continually to overcome these
immanent barriers, but overcomes them only by means which again
place these barriers in its way and on a more formidable scale.

The real barrier of capitalist production is capital itself. It
is ihat capital and its self-expansion appear as the starting and
the closing point, the motive and the purpose of production; that
production is only production for capital and not vice versa,
the means of production are not mere means for a constant expan¬
sion of the living process of the society of producers. The limits
within which the preservation and self-expansion of the value of
capital resting on the expropriation and pauperisation of the
great mass of producers can alone move — these limits come con¬
tinually into conflict with the methods of production employed
by, capital for its purposes, which drive towards unlimited
extension of production, towards production as an end in itself,
towards unconditional development of the social productivity
of labour. The means— unconditional development of the produc¬
tive forces of society — comes continually into conflict with the
limited purpose, the self-expansion of the existing capital. The
capitalist mode of production is, for this reason, a historical means
of developing the material forces of production and creating
an appropriate world-market and is, at the same time, a
continual conflict between this its historical task and its own
corresponding relations of social production.

Ill EXCESS CAPITAL AND EXCESS POPULATION

A drop in the rate of profit is attended by a rise in the mini¬
mum capital required by an individual capitalist for the pro¬
ductive employment of labour; required both for its exploitation
generally, and for making the consumed labour-time suffice as
the labour-time necessary for the production of the commodities,
so that it does not exceed the average social labour-time required
for the production of the commodities. Concentration increases
simultaneously, because beyond certain limits a large capital

INTERNAL CONTRADICTIONS OF THE LAW

251

with a small rate of profit accumulates faster thau a small capital
with a large rate of profit. At a certain high point this increasing
concentration in its turn causes a new fall in the rate of profit.
The mass of small dispersed capitals is thereby driven along the
adventurous road of speculation, credit frauds, stock swindles,
and crises. The so-called plethora of capital always applies
essentially to a plethora of the capital for which the fall in the rate
of profit is not compensated through the mass of profit — this
is always true of newly developing fresh offshoots of capital —
or to a plethora which places capitals incapable of action on their
own at the disposal of the managers of large enterprises in the
form of credit. This plethora of capital arises from the same
causes as those which call forth relative over-population, and
is, therefore, a phenomenon supplementing the latter, although
they stand at opposite poles — unemployed capital at one pole,
and unemployed worker population at the other.

Over-production of capital, not of individual commodities —
although over-production of capital always includes over¬
production of commodities — is therefore simply over-accumulation
of capital. To appreciate what this over-accumulation is (its closer
analysis follows later), one need only assume it to be absolute.
When would over-production of capital be absolute? Over¬
production which would affect not just one or another, or a few
important spheres of production, but would be absolute in
its full scope, hence would extend to all fields of production?

There would be absolute over-production of capital as soon
as additional capital for purposes of capitalist production=0.
The purpose of capitalist production, however, is self-expansion
of capital, i.e., appropriation of surplus-labour, production of
surplus-value, of profit. As soon as capital would, therefore, have
grown in such a ratio to the labouring population that neither
the absolute working-time supplied by this population, nor the
relative surplus working-time, could be expanded any further
(this last would not be feasible at any rate in the case when the
demand for labour were so strong that there were a tendency for
wages to rise); at a point, therefore, when the increased capital
produced just as much, or even less, surplus-value than it did
before its increase, there would be absolute over-production of
capital; i.e., the increased capital C+AC would produce no more,
or even less, profit than capital C before its expansion by AC.
In both cases there would be a steep and sudden fall in the general
rate of profit, but this time due to a change in the composition
of capital not caused by the development of the productive forces,

252

TENDENCY OF RATE OF PROFIT TO FALL

but rather by a rise in the money-value of the variable capilal
(because of increased wages) and the corresponding reduction in
the proportion of surplus-labour to necessary labour.

In reality, it would appear that a portion of the capital would
lie completely or partially idle (because it would have to crowd
out some of the active capital before it could expand its own
value), and the other portion would produce values at a lower rate
of profit, owing to the pressure of unemployed or but partly
employed capital. It would be immaterial in this respect if a part
of the additional capital were to take the place of the old capital,
and the latter were to take its position in the additional
capital. We should still always have the old sum of capital on one
side, and the sum of additional capital on the other. The fall
in the rate of profit would then be accompanied by an absolute
decrease in the mass of profit, since the mass of employed labour-
power could not be increased and the rate of surplus-value raised
under the conditions we had assumed, so that the mass of surplus-
value could not be increased either. And the reduced mass of
profit would have to be calculated on an increased total capital.
But even if it is assumed that the employed capital continues to
self-expand at the old rate of profit, and the mass of profit hence
remains the same, this mass would still be calculated on an
increased total capital, this likewise implying a fall in the rate
of profit. If a total capital of 1,000 yielded a profit of 100, and
after being increased to 1,500 still yielded 100, then, in the second
case, 1,000 would yield only 662/a . Self-expansion of the old
capital, in the absolute sense, would have been reduced. The cap¬
ital 1,000 would yield no more under the new circumstances
than formerly a capital = 666*/,.

It is evident, however, that this actual depreciation of the old
capital could not occur without a struggle, and that the addi¬
tional capital AC could not assume the functions of capital with¬
out a struggle. The rate of profit would not fall under the effect
of competition due to over-production of capital. It would rather
be the reverse; it would be the competitive struggle which would
begin because the fallen rate of profit and over-production of
capita] originate from the same conditions. The part of AC in
the hands of old functioning capitalists would be allowed to
remain more or less idle to prevent a depreciation of their own
original capital and not to narrow its place in the field of pro¬
duction. Or they would employ it, even at a momentary loss, to
shift the need of keeping additional capital idle on newcomers
and on their competitors in general.

INTERNAL CONTRADICTIONS OF THE LAW

253

That portion of AC which is in new hands would seek to
assume a place for itself at the expense of the old capital, and would
accomplish this in part by forcing a portion of the old capital
to lie idle. It would compel the old capital to give up its old place
and withdraw to join completely or partially unemployed addi¬
tional capital.

A portion of the old capital has to lie unused under all circum¬
stances; it has to give up its characteristic quality as capital, so
far as acting as such and producing value is concerned. The com¬
petitive struggle would decide what part of it would be particu¬
larly affected. So long as things go well, competition effects an
operating fraternity of the capitalist class, as we have seen in
the case of the equalisation of the general rale of profit, so that
each shares in the common loot in proportion to the size of his
respective investment. But as soon as it no longer is a question
of sharing profits, but of sharing losses, everyone tries to reduce
his own share to a minimum and to shove it off upon another.
The class, as such, must inevitably lose. How much the individual
capitalist must bear of the loss, i.e., to what extent he must share
in it at all, is decided by strength and cunning, and competition
then becomes a fight among hostile brothers. The antagonism
between each individual capitalist’s interests and those of the
capitalist class as a whole, then comes to the surface, just as
previously the identity of these interests operated in practice
through competition.

How is this conflict settled and the conditions restored which
correspond to the “sound ” operation of capitalist production?
The mode of settlement is already indicated in the very emergence
of the conflict whose settlement is under discussion. It implies
the withdrawal and even the partial destruction of capital amount¬
ing to the full value of additional capital AC, or at least a part
of it. Although, as the description of this conflict shows, the loss
is by no means equally distributed among individual capitals,
its distribution being rather decided through a competitive strug¬
gle in which the loss is distributed in very different proportions
and forms, depending on special advantages or previously captured
positions, so that one capital is left unused, another is destroyed,
and a third suffers but a relative loss, or is just temporarily
depreciated, etc.

But the equilibrium would be restored under all circumstances
through the withdrawal or even the destruction of more or less
capital. This would extend partly to the material substance of
capital, i.e., a part of the means of production, of fixed and

254

TENDENCY OF RATE OF PROFIT TO FALL

circulating capital, would not operate, not act as capital; some of
the operating establishments would then be brought to a stand¬
still. Although, in this respect, time attacks and worsens all
means of production (except land), the stoppage would in reality
cause far greater damage to the means of production. However,
the main effect in this case would be that these means of produc¬
tion would cease to function as such, that their function as means
of production would be disturbed for a shorter or longer
period.

The main damage, and that of the most acute nature, would
occur in respect to capital, and in so far as the latter possesses
the characteristic of value it would occur in respect to the values
of capitals. That portion of the value of a capital which exists only
in the form of claims on prospective shares of surplus-value, i.e.,
profit, in fact in the form of promissory notes on production in
various forms, is immediately depreciated by the reduction of
the receipts on which it is calculated. A part of the gold and
silver lies unused, i.e., does not function as capital. Part of the
commodities on the market can complete their process of circu¬
lation and reproduction only through an immense contraction
of their prices, hence through a depreciation of the capital which
they represent. The elements of fixed capital are depreciated to
a greater or lesser degree in just the same way. It must be added
that definite, presupposed, price relations govern the process
of reproduction, so that the latter is halted and thrown into con¬
fusion by a general drop in prices. This confusion and stagnation
paralyses the function of money as a medium of payment, whose
development is geared to the development of capital and is based
on those presupposed price relations. The chain of payment ob¬
ligations due at specific dates is broken in a hundred places. The
confusion is augmented by the attendant collapse of the credit
system, which develops simultaneously with capital, and leads
to violent and acute crises, to sudden and forcible depreciations,
to the actual stagnation and disruption of the process of reproduc¬
tion, and thus to a real falling off in reproduction.

But there would have been still other agencies at work at the
same time. The stagnation of production would have laid off
a part of the working-class and would thereby have placed the
employed part in a situation, where it would have to submit to a
reduction of wages even below the average. This has the very same
effect on capital as an increase of the relative or absolute surplus-
value at average wages would have had. Prosperity would have
led to more marriages among labourers and reduced the decimation

INTERNAL CONTRADICTIONS OF THE LAW

255

of offspring. While implying a real increase in population, this
does not signify an increase in the actual working population.
But it affects the relations of the labourer to capital in the same
way as an increase of the number of actually working labourers
would have affected them. On the other hand, the fall in prices
and the competitive struggle would have driven every capitalist
to lower the individual value of his total product below its general
value by means of new machines, new and improved working
methods, new combinations, i.e., to increase the productivity
of a given quantity of labour, to lower the proportion of variable
to constant capital, and thereby to release some labourers; in
short, to create an artificial over-population. Ultimately, the
depreciation of the elements of constant capital would itself
tend to raise the rate of profit. The mass of employed constant
capital would have increased in relation to variable, but its
value could have fallen. The ensuing stagnation of production
would have prepared — within capitalistic limits— a subsequent
expansion of production.

And thus the cycle would run its course anew. Part of the cap¬
ital, depreciated by its functional stagnation, would recover its
old value. For the rest, the same vicious circle would be described
once more under expanded conditions of production, with an
expanded market and increased productive forces.

However, even under the extreme conditions assumed by us
this absolute over-production of capital is not absolute over¬
production, not absolute over-production of means of production.
It is over-production of means of production only in so far as the
latter serve as capital , and consequently include a self-expansion
of value, must produce an additional value in proportion to the
increased mass.

Yet it would still be over-production, because capital would
be unable to exploit labour to the degree required by a “sound”,
“normal” development of the process of capitalist production, to
a degree which would at least increase the mass of profit along
with the growing mass of the employed capital; to a degree which
would, therefore, prevent the rate of profit from falling as much
as the capital grows, or even more rapidly.

Over-production of capital is never anything more than over¬
production of means of production— of means of labour and
necessities of life — which may serve as capital, i.e., may serve
to exploit labour at a given degree of exploitation; a fall in the
intensity of exploitation below a certain point, however, calls
forth disturbances, and stoppages in the capitalist production

256

TENDENCY OF RATE OF PROFIT TO FALL

process, crises, and destruction of capital. It is no contradiction
that this over-production of capital is accompanied by more or
less considerable relative over-population. The circumstances
which increased the productiveness of labour, augmented the
mass of produced commodities, expanded markets, accelerated
accumulation of capital both in terms of its mass and its value,
and lowered the rate of profit — these same circumstances
have also created, and continuously create, a relative over¬
population, an over-population of labourers not employed by
the surplus-capital owing to the low degree of exploitation
at which alone they could be employed, or at least owing to the
low rate of profit which they would yield at the given degree of
exploitation.

If capital is sent abroad, this is not done because it absolutely
could not be applied at home, but because it can be employed
at a higher rate of profit in a foreign country. But such capital
is absolute excess capital for the employed labouring population
and for the home country in general. It exists as such alongside
the relative over-population, and this is an illustration of how
both of them exist side by side, and mutually influence one
another.

On the other hand, a fall in the rate of profit connected with
accumulation necessarily calls forth a competitive struggle. Com¬
pensation of a fall in the rate of profit by a rise in the mass of
profit applies only to the total social capital and to the big, firmly
placed capitalists. The new additional capital operating inde¬
pendently does not enjoy any such compensating conditions. It
must still win them, and so it is that a fall in the rate of profit
calls forth a competitive struggle among capitalists, not vice
versa. To be sure, the competitive struggle is accompanied by a
temporary rise in wages and a resultant further temporary fall of
the rate of profit. The same occurs when there is an over-produc¬
tion of commodities, when markets are overstocked. Since the
aim of capital is not to minister to certain wants, but to produce
profit, and since it accomplishes this purpose by methods which
adapt the mass of production to the scale of production, not vice
versa, a rift must continually ensue between the limited dimen¬
sions of consumption under capitalism and a production which
forever tends to exceed this immanent barrier. Furthermore,
capital consists of commodities, and therefore over-production
of capital implies over-production of commodities. Hence the
peculiar phenomenon of economists who deny over-production of
commodities, admitting over-production of capital. To say that

INTERNAL CONTRADICTIONS OF THE LAW

257

there is no general over-production, but rather a disproportion
within the various branches of production, is no more than to
say that under capitalist production the proportionality of the
individual branches of production springs as a continual process
from disproportionality, because the cohesion of the aggregate
production imposes itself as a blind law upon the agents of
production, and not as a law which, being understood and hence
controlled by their common mind, brings the productive process
under their joint control. It amounts furthermore to demanding
that countries in which capitalist production is not developed,
should consume and produce at a rate which suits the countries with
capitalist production. If it is said that over-production is only
relative, this is quite correct; but the entire capitalist mode of
production is only a relative one, whose barriers are not absolute.
They are absolute only for this mode, i.e., on its basis. How could
there otherwise be a shortage of demand for the very commodities
which the mass of the people lack, and how would it be possible
for this demand to be sought abroad, in foreign markets, to pay
the labourers at home the average amount of necessities of life?
This is possible only because in this specific capitalist interrela¬
tion the surplus-product assumes a form in which its owner can¬
not offer it for consumption, unless it first reconverts itself into
capital for him. If it is finally said that the capitalists have only
to exchange and consume their commodities among themselves,
then the entire nature of the capitalist mode of produttion is
lost sight of; and also forgotten is the fact that it is a matter of
expanding the value of the capital, not consuming it. In short,
all these objections to the obvious phenomena of over-production
(phenomena which pay no heed to these objections) amount to
the contention that the barriers of capitalist production are not
barriers of production generally, and therefore not barriers of this
specific, capitalist mode of production. The contradiction of the
capitalist mode of production, however, lies precisely in its
tendency towards an absolute development of the productive
forces, which continually come into conflict with the specific
conditions of production in which capital moves, and alone can
move.

There are not too many necessities of life produced, in pro¬
portion to the existing population. Quite the reverse. Too little
is produced to decently and humanely satisfy the wants of the
groat mass.

There are not too many means of production produced to em¬
ploy the able-bodied portion of the population. Quite the reverse.

258

TENDENCY OF RATE OF PROFIT TO FALL

In the first place, too large a portion of the produced population
is not really capable of working, and is through force of circum¬
stances made dependent on exploiting the labour of others, or
on labour which can pass under this name only under a miserable
mode of production. In the second place, not enough means of
production are produced to permit the employment of the entire
able-bodied population under the most productive conditions,
so that their absolute working period could be shortened by
the mass and effectiveness of the constant capital employed during
working-hours.

On the other hand, too many means of labour and necessities
of life are produced at times to permit of their serving as means
for the exploitation of labourers at a certain rate of profit. Too
many commodities are produced to permit of a realisation and
conversion into new capital of the value and surplus-value con¬
tained in them under the conditions of distribution and consump¬
tion peculiar to capitalist production, i.e., too many to permit
of the consummation of this process without constantly recurring
explosions.

Not too much wealth is produced. But at times too much wealth
is produced in its capitalistic, self-contradictory forms.

The limitations of the capitalist mode of production come to
the surface:

1) In that the development of the productivity of labour creates
out of the falling rate of profit a law which at a certain point
comes into antagonistic conflict with this development and must
be overcome constantly through crises.

2) In that the expansion or contraction of production are
determined by the appropriation of unpaid labour and the propor¬
tion of this unpaid labour to materialised labour in general, or,
to speak the language of the capitalists, by profit and the pro¬
portion of this profit to the employed capital, thus by a definite
rate of profit, rather than the relation of production to social
requirements, i.e., to the requirements of socially developed
human beings. It is for this reason that the capitalist mode of
production meets with barriers at a certain expanded stage of pro¬
duction which, if viewed from the other premise, would reversely
have been altogether inadequate. It comes to a standstill at a
point fixed by the production and realisation of profit, and not
the satisfaction of requirements.

If the rate of profit falls, there follows, on the one hand, an
exertion of capital in order that the individual capitalists,
through improved methods, etc., may depress the value of their

INTERNAL CONTRADICTIONS OF THE LAW

259

individual commodity below the social average value and thereby
realise an extra profit at the prevailing market-price. On the
other hand, there appears swindling and a general promotion
of swindling by recourse to frenzied ventures with new methods
of production, new investments of capital, new adventures, all
for the sake of securing a shred of extra profit which is independent
of the general average and rises above it.

The rate of profit, i.e., the relative increment of capital, is
above all important to all new offshoots of capital seeking to
find an independent place for themselves. And as soon as forma¬
tion of capital were to fall into the hands of a few established
big capitals, for which the mass of profit compensates for the
falling rate of profit, the vital flame of production would be
altogether extinguished. It would die out. The rate of profit is the
motive power of capitalist production. Things are produced only
so long as they can be produced with a profit. Hence the concern
of the English economists over the decline of the rate of profit.
The fact that the bare possibility of this happening should worry
Ricardo, shows his profound understanding of the conditions
of capitalist production. It is that which is held against him,
it is his unconcern about “human beings, ” and his having an eye
solely for the development of the productive forces, whatever
the cost in human beings and capital-Fa/ues— it is precisely that
which is the important thing about him. Development of the pro¬
ductive forces of social labour is the historical task and justifi¬
cation of capital. This is just the way in which it unconsciously
creates the material requirements of a higher mode of production.
What worries Ricardo is the fact that the rate of profit, the
stimulating principle of capitalist production, the fundamental
premise and driving force of accumulation, should be endangered
by the development of production itself. And here the quantita¬
tive proportion means everything. There is, indeed, something
deeper behind it, of which he is only vaguely aware. It comes to
the surface here in a purely economic way — i.e., from the bourgeois
point of view, within the limitations of capitalist understand¬
ing, from the standpoint of capitalist production itself — that it has
its barrier, that it is relative, that it is not an absolute, but only
a historical mode of production corresponding to a definite limited
epoch in the development of the material requirements of pro¬
duction.

260

TENDENCY OF RATE OF PROFIT TO FALL

IV. SUPPLEMENTARY REMARKS

Since the development of the productivity of labour proceeds
very disproportionately in the various lines of industry, and
not only disproportionately in degree but frequently also in
opposite directions, it follows that the mass of average profit
(=surplus-value) must be substantially below the level one would
naturally expect after the development of the productiveness in the
most advanced branches of industry. The fact that the develop¬
ment of the productivity in different lines of industry proceeds
at substantially different rates and frequently even in opposite
directions, is not due merely to the anarchy of competition and
the peculiarity of the bourgeois mode of production. Productiv¬
ity of labour is also bound up with natural conditions, which
frequently become less productive as productivity grows — inas¬
much as the latter depends on social conditions. Hence the oppo¬
site movements in these different spheres — progress here, and
retrogression there. Consider the mere influence of the seasons,
for instance, on which the bulk of raw materials depends for its
mass, the exhaustion of forest lands, coal and iron mines,
etc.

While the circulating part of constant capital, such as raw
materials, etc., continually increases its mass in proportion to the
productivity of labour, this is not the case with fixed capital,
such as buildings, machinery, and lighting and heating facilities,
etc. Although in absolute terms a machine becomes dearer with
the growth of its bodily mass, it becomes relatively cheaper. If
five labourers produce ten times as much of a commodity as
before, this does not increase the outlay for fixed capital ten-fold;
although the value of this part of constant capital increases with
the development of the productiveness, it does not by any means
increase in the same proportion. We have frequently pointed out
the difference in the ratio of constant to variable capital as
expressed in the fall of the rate of profit, and the difference in the
same ratio as expressed in relation to the individual commodity
and its price with the development of the productivity of
labour.

[The value of a commodity is determined by the total labour-
time of past and living labour incorporated in it. The increase
in labour productivity consists precisely in that the share of living
labour is reduced while that of past labour is increased, but in
such a way that the total quantity of labour incorporated in that

INTERNAL CONTRADICTIONS OF THE LAW

261

commodity declines; in such a way, therefore, that living labour
decreases more than past labour increases. The past labour con¬
tained in the value of a commodity — the constant part of cap¬
ital — consists partly of the wear and tear of fixed, partly of
circulating, constant capital entirely consumed by that commodity,
such as raw and auxiliary materials. The portion of value deriving
from raw and auxiliary materials must decrease with the
increased productivity of labour, because with regard to these
materials the productivity expresses itself precisely by reducing
their value. On the other hand, it is most characteristic of rising
labour productivity that the fixed part of constant capital is
strongly augmented, and with it that portion of its value which is
transferred by wear and tear to the commodities. For a new method
of production to represent a real increase in productivity, it
must transfer a smaller additional portion of the value of fixed
capital to each unit of the commodity in wear and tear than the
portion of value deducted from it through the saving in living
labour; in short, it must reduce the value of the commodity. It
must obviously do so even if, as it occurs in some cases, an addi¬
tional value goes into the value of the commodity for more or
dearer raw or auxiliary materials over and above the additional
portion for wear and tear of the fixed capital. All additions to
the value must be more than offset by the reduction in value
resulting from the decrease in living labour.

This reduction of the total quantity of labour going into a
commodity seems, accordingly, to be the essential criterion of
increased productivity of labour, no matter under what social
conditions production is carried on. Productivity of labour, indeed,
would always be measured by this standard in a society, in which
producers regulate their production according to a preconceived
plan, or even under simple commodity-production. But how does
the matter stand under capitalist production?

Suppose, a certain line of capitalist industry produces a normal
unit of its commodity under the following conditions: The wear
and tear of fixed capital amounts to 1/g shilling per piece; raw and
auxiliary materials go into it to the amount of i7 */* shillings
per piece; wages, 2 shillings; and surplus-value, 2 shillings at a
rate of surplus-value of 100%. Total value=22 shillings. We
assume for the sake of simplicity that the capital in this line of
production has the average composition of social capital, so that
the price of production of the commodity is identical with its
value, and the profit of the capitalist with the created surplus-
value. Then the cost-price of the commodity=1/*+l'71/i+2=20s.,

262

TENDENCY OP RATE OF PROFIT TO FALL

the average rate of profit jQ=10%, and the price of production

per piece of the commodity, like its value=22s.

Suppose a machine is invented which reduces by half the living
labour required per piece of the commodity, but trebles that
portion of its value accounted for by the wear and tear of the
fixed capital. In that case, the calculation is: Wear and tear =
=l1/ash., raw and auxiliary materials, as before, lT^sh., wages,
lsh., surplus-value lsh., total 21sh. The commodity then falls
lsh. in value; the new machine has certainly increased the pro¬
ductivity of labour. But the capitalist sees the matter as follows:
his cost-price is now U/jS. for wear, for raw and auxil¬

iary materials, lsh. for wages, total 20s., as before. Since the
rate of profit is not immediately altered by the new machine,
he will receive 10% over his cost-price, that is, 2s. The price of
production, then, remains unaltered = 22s., but is Is. above the
value. For a society producing under capitalist conditions the
commodity has not cheapened. The new machine is no improve¬
ment for it. The capitalist is, therefore, not interested in intro¬
ducing it. And since its introduction would make his present,
not as yet worn-out, machinery simply worthless, would turn it
into scrap-iron, hence would cause a positive loss, he takes good
care not to commit this, what is for him a utopian, mistake.

The law of increased productivity of labour is not, therefore,
absolutely valid for capital. So far as capital is concerned, pro¬
ductiveness does not increase through a saving in living labour
in general, but only through a saving in the paid portion of living
labour, as compared to labour expended in the past, as we have
already indicated in passing in Book I (Kap. XIII, 2, S. 409/398).*
Here the capitalist mode of production is beset with another con¬
tradiction. Its historical mission is unconstrained development
in geometrical progression of the productivity of human labour.
It goes back on its mission whenever, as here, it checks the
development of productivity. It thus demonstrates again that it
is becoming senile and that it is more and more outlived.]37

Under competition, the increasing minimum of capital re¬
quired with the increase in productivity for the successful opera¬
tion of an independent industrial establishment, assumes the

• English edition: Ch. XV, 2, pp. 392-93.— Ed.

37 The foregoing is placed in brackets, because, though a rehash of the
notes of the original manuscript, it goes in some points beyond the scope of
the material found in the original. — F. E.

INTERNAL CONTRADICTIONS OF THE LAW

263

following aspect: As soon as the new, more expensive equipment
has become universally established, smaller capitals are hence¬
forth excluded from this industry. Smaller capitals can carry
on independently in the various spheres of industry only in the
infancy of mechanical inventions. Very large undertakings, such
as railways, on the other hand, which have an unusually high
proportion of constant capital, do not yield the average rate of
profit, bilt only a portion of it, only an interest. Otherwise the
general rate of profit would have fallen still lower. But this offers
direct employment to large concentrations of capital in the form
of stocks.

Growth of capital, hence accumulation of capital, does not
imply a fall in the rate of profit, unless it is accompanied by the
aforementioned changes in the proportion of the organic con¬
stituents of capital. Now it so happens that in sjiite of the constant
daily revolutions in the mode of production, now this and now
that larger or smaller portion of the total capital continues to
accumulate for certain periods on the basis of a given average
proportion of those constituents, so that there is no organic change
with its growth, and consequently no cause for a fall in the rate
of profit. This constant expansion of capital, hence also an
expansion of production, on the basis of the old method of
production which goes quietly on while new methods are already
being introduced at its side, is another reason, why the rate of
profit does not decline as much as the total capital of society
grows.

The increase in the absolute number of labourers does not occur
in all branches of production, and not uniformly in all, in spite
of the relative decrease of variable capital laid out in wages. In
agriculture, the decrease of the element of living labour may be
absolute.

At any rate, it is but a requirement of the capitalist mode of
production that the number of wage-workers should increase
absolutely, in spite of its relative decrease. Labour-power becomes
redundant for it as soon as it is no longer necessary to employ
it for 12 to 15 hours daily. A development of productive forces
which would diminish the absolute number of labourers, i.e.,
enable the entire nation to accomplish its total production in a
shorter time span, would cause a revolution, because it would
put the bulk of the population out of the running. This is another
manifestation of the specific barrier of capitalist production,
showing also that capitalist production is by no means an abso¬
lute form for the development of the productive forces and for

264

TENDENCY OF RATE OF PROFIT TO FALL

the creation of wealth, but rather that at a certain point it comes
into collision with this development. This collision appears partly
in periodical crises, which arise from the circumstance that now
this and now that portion of the labouring population becomes
redundant under its old mode of employment. The limit of capi¬
talist production is the excess time of the labourers. The absolute
spare time gained by society does not concern it. The development
of productivity concerns it only in so far as it increases the
surplus labour-time of the working-class, not because it decreases
the labour-time for material production in general. It moves
thus in a contradiction.

We have seen that the growing accumulation of capital implies
its growing concentration. Thus grows the power of capital, the
alienation of the conditions of social production personified in
the capitalist from the real producers. Capital comes more and
more to the fore as a social power, whose agent is the capitalist.
This social power no longer stands in any possible relation to that
which the labour of a single individual can create. It becomes an
alienated, independent, social power, which stands opposed to
society as an object, and as an object that is the capitalist’s source
of power. The contradiction between the general social power
into which capital develops, on the one hand, and the private
power of the individual capitalists over these social conditions
of production, on the other, becomes ever more irreconcilable,
and yet contains the solution of the problem, because it implies
at the same time the transformation of the conditions of produc¬
tion into general, common, social, conditions. This transformation
stems from the development of the productive forces under capi¬
talist production, and from the ways and means by which this
development takes place.

No capitalist ever voluntarily introduces a new method of
production, no matter how much more productive it may be, and
how much it may increase the rate of surplus-value, so long as it
reduces the rate of profit. Yet every such new method of produc¬
tion cheapens the commodities. Hence, the capitalist sells them
originally above their prices of production, or, perhaps, above
their value. He pockets the difference between their costs of pro¬
duction and the market-prices of the same commodities produced
at higher costs of production. He can do this, because the average
labour-time required socially for the production of these
latter commodities is higher than the labour-time required for

INTERNAL CONTRADICTIONS OF THE LAW

265

the new methods of production. His method of production stands
above the social average. But competition makes it general and
subject to the general law. There follows a fall in the rate of
profit — perhaps first in this sphere of production, and eventually
it achieves a balance with the rest — which is, therefore, wholly
independent of the will of the capitalist.

It is still to be added to this point, that this same law also
governs those spheres of production, whose product passes neither
directly nor indirectly into the consumption of the labourers,
or into the conditions under which their necessities are produced;
it applies, therefore, also to those spheres of production, in which
there is no cheapening of commodities to increase the relative
surplus-value or cheapen labour-power. (At any rate, a cheapen¬
ing of constant capital in all these lines may increase the rate
of profit, with the exploitation of labour remaining the same.)
As soon as the new production method begins to spread, and there¬
by to furnish tangible proof that these commodities can actually
be produced more cheaply, the capitalists working with the old
methods of production must sell their product below its full price
of production, because the value of this commodity has fallen,
and because the labour-time required by them to produce it is
greater than the social average. In one word— and this appears
as an effect of competition— these capitalists must also intro¬
duce the new method of production, in which the proportion of
variable to constant capital has been reduced.

All the circumstances which lead to the use of machinery cheap¬
ening the price of a commodity produced by it, come down in
the last analysis to a reduction of the quantity of labour absorbed
by a single piece of the commodity; and secondly, to a reduction
in the wear-and-tear portion of the machinery, whose value goes
into a single piece of the commodity. The less rapid the wear
of machinery, the more the commodities over which it is distrib¬
uted, and the more living labour it replaces before its term of
reproduction arrives. In both cases the quantity and value of
the fixed constant capital increase in relation to the variable.

“All other things being equal, the. power of a nation to save
from its profits varies with the rate of profits: is great when they
are high, less, when low; but as the rate of profits declines, all
other things do not remain equal _ A low rate of profits is ordi¬

narily accompanied by a rapid rate of accumulation, relatively
to the numbers of the people, as in England ... a high rate of profit
by a slower rate of accumulation, relatively to the numbers
of the people. Examples: Poland, Russia, India, etc.” (Richard

266

TENDENCY OP RATE OF PROFIT TO FALL

Jones, An Introductory Lecture on Political Economy , London,
1833, p. 50 ff.) Jones emphasises correctly that in spite of the fall¬
ing rate of profit the inducements and faculties to accumulate
are augmented; first, on account of the growing relative over¬
population; second, because the growing productivity of labour
is accompanied by an increase in the mass of use-values represent¬
ed by the same exchange-value, hence in the material elements of
capital; third, because the branches of production become more
varied; fourth, due to the development of the credit system, the
stock companies, etc., and the resultant case of converting money
into capital without becoming an industrial capitalist; fifth,
because the wants and the greed for wealth increase; and, sixth,
because the inass of investments in fixed capital grows, etc.

Three cardinal facts of capitalist production:

1) Concentration of means of production in few hands, whereby
they cease to appear as the property of the immediate labourers
and turn into social production capacities. Even if initially they
are the private property of capitalists. These are the trustees of
bourgeois society, but they pocket all the proceeds of this
trusteeship.

2) Organisation of labour itself into social labour: through
co-operation, division of labour, and tbe uniting of labour with
the natural sciences.

In these two senses, the capitalist mode of production abolishes
private property and private labour, even though in contradictory
forms.

3) Creation of the world-market.

The stupendous productivity developing under the capitalist
mode of production relative to population, and the increase, if
not in the same proportion, of capital-values (not just of their
material substance), which grow much more rapidly than the
population, contradict the basis, which constantly narrows in
relation to the expanding wealth, and for which all this immense
productiveness works. They also contradict the conditions under
which this swelling capital augments its value. Hence the crises.

PART IV

CONVERSION OF COMMODITY -CAPITAL
AND MONEY-CAPITAL
INTO COMMERCIAL CAPITAL
AND MONEY-DEALING CAPITAL
(MERCHANT’S CAPITAL)

CHAPTER XVI
COMMERCIAL CAPITAL

Merchant’s, or trading, capital breaks up into two forms or
sub-divisions, namely, commercial capital and money-dealing
capital, which we shall now define more closely, in so far as this
is necessary for our analysis of capital in its basic structure. This
is all the more necessary, because modern political economy,
even in the persons of its best exponents, throws trading capi¬
tal and industrial capital indiscriminately together and, in effect,
wholly overlooks the characteristic peculiarities of the former.

The movements of commodity-capital have been analysed in
Book II.* To take the total capital of society, one part of it —
always made up of different elements and even changing in mag¬
nitude — always exists in the form of commodities on the market,
to be converted into money. Another part exists on the market
in the form of money, to be converted into commodities. It is
always in the process of this transition, of this formal metamorpho¬
sis. Inasmuch as this function of capital in the process of circu¬
lation is at all set apart as a special function of a special capital,
as a function established by virtue of the division of labour to
a special group of capitalists, commodity-capital becomes
commercial capital.

We have explained (Book II, Chapter VI, “The Costs of Cir¬
culation,” 2 and 3) to what extent the transport industry, storage
and distribution of commodities in a distributable form, may be
regarded as production processes continuing within the process

* English edition: Yol. II, pp. 136-52. — Ed.

268

MERCHANT'S CAPITAL

of circulation. These episodes incidental to the circulation of
commodity-capital arc sometimes confused with the distinct func¬
tions of merchant’s or commercial capital. Sometimes they are,
indeed, practically bound up with these distinct, specific functions,
although with the development of the social division of labour
the function of merchant’s capital evolves in a pure form, i.e.,
divorced from those real functions, and independent of them.
Those functions are therefore irrelevant to our purpose, which
is to define the specific difference of this special form of capital.
In so far as capital solely employed in the circulation process,
special commercial capital, partly combines those functions
with its specific ones, it does not appear in its pure form. We
obtain its pure form after stripping it of all these incidental
functions.

We have seen that the existence of capital as commodity-
capital and the metamorphosis it undergoes within the sphere of
circulation in the market as commodity-capital — a metamorpho¬
sis which resolves itself into buying and selling, converting
commodity-capital into money-capital and money-capital into com¬
modity-capital — that this forms a phase in the reproduction
process of industrial capital, hence in its process of production
as a whole. We have also seen, however, that it is distinguished
in its function as a capital of circulation from its function as
productive capital. These are two different and separate forms of
existence of the same capital. One portion of the total social
capital is continually on the market in the form of capital of
circulation, passing through this process of transmutation,
although for each individual capital its existence as commodity-
capital, and its metamorphosis as such, merely represent ever-
vanishing and ever renewed nodal points— i.e., stages of transi¬
tion in the continuity of its production process, and although the
elements of commodity-capital in the market vary continuously
for this reason, being constantly withdrawn from the commodity-
market and equally periodically returned to it as new products
of the process of production.

Commercial capital is nothing but a transmuted form of a part
of this capital of circulation constantly to be found in the mar¬
ket, ever in the process of its metamorphosis, and always encom¬
passed by the sphere of circulation. We say a part, because a part
of the selling and buying of commodities always takes place
directly between industrial capitalists. We leave this part entirely
out of consideration in this analysis, because it contributes
nothing to defining the conception, or to understanding the

COMMERCIAL CAPITAL

269

specific nature of merchant’s capital, and because it has further¬
more been exhaustively treated for our purpose in Book II.

The dealer in commodities, as a capitalist generally, appears
on the market primarily as the representative of a certain sum
of money, which he advances as a capitalist, i.e., which he wants
to turn from x (its original value) into x+Ax (the original sum
plus profit). But it is evident to him— not being just a capital¬
ist in general, but rather a special dealer in commodities — that
his capital must first enter the market in the form of money-
capital, for he does not produce commodities. He merely trades
in them, expedites their movement, and to operate with them
he must first buy them, and, therefore, must be in possession of
money-capital.

Suppose that a dealer in commodities owns £3,000 which he
invests as a trading capital. With these £3,000 he buys, say,
30,000 yards of linen from some linen manufacturer at 2s. per yard.
He then sells the 30,000 yards. If the annual average rate of prof¬
it = 10% and he makes an annual profit of 10% after deducting
ail incidental expenses, then by the end of the year he has
converted his £3,000 into £3,300. How he makes this profit is a
question which we shall discuss later. At present, we intend to
consider solely the form of the movements of his capital. With his
£3,000 he keeps buying linen and selling it; he constantly
repeats this operation of buying in order to sell, M — C— M', the
simple form of capital as it obtains entirely in the process of
circulation, uninterrupted by the production process, which
lies outside its own movement and function.

What is now the relation of this commercial capital to com¬
modity-capital as a mere form of existence of industrial capital?
So far as the linen manufacturer is concerned, he has realised
the value of his linen with the merchant's money and thereby
completed the first phase in the metamorphosis of his commod¬
ity-capital — its conversion into money. Other conditions being
equal, he can now proceed to reconvert this money into yarn, coal,
wages, etc., and into means of existence, etc., for the consumption
of his revenue. Hence, leaving aside the revenue expenditure, he
can go on with his process of reproduction.

But while the sale of the linen, its metamorphosis into money,
has takeh place for him, as producer, it has not yet taken place
for the linen itself. It is still on the market as commodity-capital
awaiting to undergo its first metamorphosis — to be sold. Noth¬
ing has happened to this linen besides a change in the person
of its owner. As concerns its purpose, as concerns its place in the

270

MERCHANT’S CAPITAL

process, it is still commodity-capital, a saleable commodity, with
the only difference that it is now in the merchant’s hands instead
of the manufacturer’s. The function of selling it, of effecting the
first phase of its metamorphosis, has passed from the manufac¬
turer to the merchant, has become the special business of the
merchant, whereas previously it was a function which the pro¬
ducer had to perform himself after having completed the function
of its production.

Let us assume that the merchant fails to sell the 30,000 yards
of linen during the interval required by the linen manufacturer
to bring another 30,000 yards to market at a value of £3,000. The
merchant cannot buy them again, because he still has in stock
the unsold 30,000 yards which have not as yet been reconverted
into money-capital. A stoppage ensues, i.e., an interruption of
reproduction. The linen producer might, of course, have addition¬
al money-capital at his disposal, which he could convert into
productive capital, regardless of the sale of the 30,000 yards, in
order to continue the production process. But this would not alter
the situation. So far as the capital tied up in the 30,000 yards
of linen is concerned, its process of reproduction is, and remains,
interrupted. It is, indeed, easily seen here that the merchant s
operations are really nothing but operations that must be per¬
formed at all events to convert the producer’s commodity-capital
into money. They are operations which effect the functions of
commodity-capital in the circulation and reproduction processes.
If it devolved upon the producer’s clerk to attend exclusively to the
sale, and also the purchase, instead of an independent merchant,
this connection would not be obscured for a single moment.

Commercial capital is, therefore, nothing but the producer’s
commodity-capital which has to undergo the process of conver¬
sion into money — to perform its function of commodity-capital
on the market — the only difference being that instead of rep¬
resenting an incidental function of the producer, it is now the
exclusive operation of a special kind of capitalist, the merchant,
and is set apart as the business of a special investment of capital.

This becomes evident, furthermore, in the specific form of cir¬
culation of commercial capital. The merchant buys a commodity
and then sells it: M — G — M'. In the simple circulation of com¬
modities, or even in the circulation of commodities as it appears
in the circulation process of industrial capital, C' — M — C, cir¬
culation is effected by. each piece of money changing hands twice.
The linen manufacturer sells his commodity — linen, convert¬
ing it into money; the buyer’s money passes into his hands.

COMMERCIAL CAPITAL

271

With this same money he buys yarn, coal, labour, etc.— expends
the money for reconverting the value of linen into the commodi¬
ties which make up its production elements. The commodity he
buys is not the same commodity, not the same kind of commodity
which he sells. He has sold products and bought means of pro¬
duction. But it is different with respect to the movements of mer¬
chant’s capital. With his £3,000 the linen merchant buys 30,000
yards of linen; he sells the same 30,000 yards of linen in order
to retrieve his money-capital (£3,000 and the profit) from cir¬
culation. It is not the same pieces of money, but rather the same
commodity which here changes places twice; the commodity passes
from the seller into the hands of the buyer, and from the hands
of the buyer, who now becomes seller, into those of another buyer.
It is sold twice, and may be sold repeatedly through the medium
of a series of merchants. And it is precisely through this repeated
sale, through this two-fold change of place of the same commodity,
that the money advanced for its purchase by the first buyer is
retrieved, its reflux to him effected. In one case, C' — M — C effects
the two-fold change of place of the same money, the sale of a
commodity in one form and the purchase of a commodity in
another. In the other case, M — C — M' effects the two-fold change
of place of the same commodity, the withdrawal of advanced
money from circulation. It is evident that the commodity has not
been finally sold when it passes from the producer into the hands
of the merchant, in that the latter merely carries on the operation
of selling — or effects the function of commodity-capital. But at
the same time it is evident that what is G— M, a mere function of
his capital in its transient form of commodity-capital for the pro¬
ductive capitalist, is M — C — M', a specific increase in the value of
his advanced money-capital, for the merchant. One phase of the
metamorphosis of commodities appears here in respect to the mer¬
chant in the form of M — C — M', hence as evolution of a distinct
kind of capital.

The merchant finally sells his commodity, that is, the linen,
to the consumer, be it a productive consumer (for instance, a
bleacher), or an individual who acquires the linen for his private
use. The merchant thereby recovers his advanced capital (with a
profit), and can repeat his operation anew. Had the money served
merely as a means of payment in purchasing the linen, so that
the merchant would have had to pay only after six weeks, and had
he succeeded in selling before this term was out, he could have
paid the linen manufacturer without advancing any money-capital
of his own. Had he not sold it, he would have had to advance

272

MERCHANT’S CAPITAL

his £3,000 on the date of expiration, instead of on delivery of
the linen. And if a drop in the market-prices had compelled him
to sell below the purchase price, he would have had to make good
the shortage out of his own capital.

What is it, then, that lends to commercial capital the charac¬
ter of an independently operating capital, whereas in the hands
of the producer who does his own selling it is obviously merely
a special form of his capital in a specific phase of the reproduction
process during its sojourn in the sphere of circulation?

First: The fact that commodity-capital is finally converted
into money, that it performs its initial metamorphosis, i.e., its
appropriate function on the market qua commodity-capital while
in the hands of an agent other than the producer, and that this
function of commodity-capital is effected by the merchant in his
operations, his buying and selling, so that these operations as¬
sume the appearance of a separate undertaking distinct from the
other functions of industrial capital — and hence of an independent
undertaking. It is a distinct form of the social division of labour,
so that part of the function ordinarily performed as a special
phase of the reproduction process of capital, in this case — cir¬
culation, appears as the exclusive function of specific circulation
agent distinct from the producer. But this alone would by no
means give this particular business the aspect of a function of
a specific capital distinct from, and independent of, industrial
capital engaged in the process of reproduction; indeed, it does
not so appear in cases where trade is carried on by travelling
salesmen or other direct agents of the industrial capitalist. There¬
fore, there must be a second element involved.

Second: This arises from the fact that in his capacity as an
independent circulation agent, the merchant advances money-cap¬
ital (his own or borrowed). The transaction which for industrial
capital in the reproduction process amounts merely to C — M,
i.e., converting commodity-capital into money-capital, or mere
sale, assumes for the merchant the form of M — C — M', or pur¬
chase and sale of the same commodity, and thus of a reflux of
money-capital which leaves him in the purchase, and returns to
him in the sale.

It is always C — M, the conversion of commodity-capital into
money-capital, which for the merchant assumes the form of
M — C — M, inasmuch as he advances capital to purchase commodi¬
ties from their producers; it is always the first metamorphosis
of commodity-capital, although for a producer, or for industrial
capital in process of reproduction, the same transaction may

COMMERCIAL CAPITAL

273

amount to M — C, to a reconversion of money into commodities
(means of production), to the second phase of the metamorphosis.
For the linen producer, the first metamorphosis was C — M, the
conversion of his commodity-capital into money-capital. For
the merchant the same act appears as M — C, as a conversion
of his money-capital into commodity-capital. Now, if he sells
this linen to a bleacher, it will mean M — C, i.e., the conversion
of money-capital into productive capital, this being the second
metamorphosis of his commodity-capital for the bleacher, while for
the merchant it means C — M, the sale of the linen he had bought.
But in fact it is only at this point that the commodity-capital
produced by the linen manufacturer has been finally sold. In other
words, this M — C — M of the merchant represents no more than
a middleman’s function for C — M between two manufacturers.
Or let us assume that the linen manufacturer buys yarn from
a yarn dealer with a portion of the value of the sold linen. This
is M — C for him. But for the merchant selling the yarn it is C — M,
the resale of the yarn. As concerning the yarn in its capacity of
commodity-capital, it is no more than its final sale, whereby it
passes from the sphere of circulation into that of consumption; it
is C — M, the consummation of its first metamorphosis. Whether
the merchant buys, or sells to the industrial capitalist, his
M — C— M, the circuit of merchant’s capital, always expresses
what is just C— M, or simply the completion of its first metamor¬
phosis, with regard to the commodity-capital, a transient form of
industrial capital in process of reproduction. The M — C of
merchant’s capital is C — M only for the industrial capitalist, not
for the commodity-capital produced by him. It is but the transfer
of commodity-capital from the industrial capitalist to the cir¬
culation agent. It is not until the merchant’s capital closes G — M
that functioning commodity-capital performs its final C — M.
M— C — M amounts solely to two C — M’s of the same commodity-
capital, two successive sales of it, which merely effect its last and
final sale.

Thus, commodity-capital assumes in commercial capital the
form of an independent type of capital because the merchant
advances money-capital, which is realised and functions as capital
only by serving exclusively to mediate the metamorphosis of
commodity-capital, its function as commodity-capital, i.e., its
conversion into money, and it accomplishes this by the continual
purchase and sale of commodities. This is its exclusive operation.
This activity of effecting the circulation process of industrial
capital is the exclusive function of the money-capital with which

274 MERCHANT’S CAPITAL

the merchant operates. By means of this function he converts
his money into money-capital, moulds his M into M — G — M ,
and by the same process converts commodity-capital into commer¬
cial capital.

So long and so far as commercial capital exists in the form of
commodity-capital, it is obviously nothing else — from the stand¬
point of the reproduction process of the total social capital — but
a portion of industrial capital in the market in process of metamor¬
phosis, which exists and functions as commodity-capital. It is
therefore only the money-capital advanced by the merchant
which is exclusively destined for purchase and sale and for this
reason never assumes any other form but that of commodity-
capital and money-capital, never that of productive capital, and is
always confined to the sphere of circulation of capital — it is only
this money-capital which is now to be regarded with reference to
the entire reproduction process of capital.

As soon as the producer, the linen manufacturer, has sold his
30,000 yards to the merchant for £3,000, he uses the money so
obtained to buy the necessary means of production, so that his
capital returns to the production process. His process of produc¬
tion continues without interruption. So far as he is concerned,
the conversion of his commodity into money is accomplished. But
for the linen itself, as we have seen, its metamorphosis has not
yet taken place. It has not yet been finally reconverted into money,
has not yet passed as a use-value into either productive or indi¬
vidual consumption. It is now the linen merchant who represents
on the market the same commodity-capital originally represented
by the linen manufacturer. For the latter the process of transfor¬
mation has been curtailed, only to be continued in the merchant’s
hands.

Had the linen producer been obliged to wait until his linen
had really ceased being a commodity, until it has passed into
the hands of its ultimate buyer, its productive or individual con¬
sumer, his process of reproduction would have been interrupted.
Or, to avoid interrupting it, he would have had to curtail his
operations, to convert a smaller portion of his linen into yarn,
coal, labour, etc., in short, into the elements of productive capi¬
tal, and to retain a larger portion of it as a money reserve, so
that with one portion of his capital on the market in the shape of
commodities, another would continue the process of production;
one portion would be on the market in the form of commodities;
while the other returned in the form of money. This division of
his capital is not abolished by the merchant’s intervention. But

COMMERCIAL CAPITAL

275

without it the portion of money reserve in the capital of circula¬
tion would always have to be greater in relation to the part em¬
ployed in the form of productive capital, and the scale of reproduc¬
tion would have to be restricted accordingly. Instead, however,
the manufacturer is enabled to constantly employ a larger portion
of his capital in the actual process of production, and a smaller
portion as money reserve.

On the other hand, however, another portion of the social cap¬
ital, in the form of merchant’s capital, is kept continually within
the sphere of circulation. It is employed all the time for the sole
purpose of buying and selling. Hence there seems to have been
no more than a replacement of persons holding this capital in
their hands.

If, instead of buying £3,000 worth of linen with the purpose
of selling it again, the merchant had applied these £3,000 pro¬
ductively, the productive capital of society would have increased.
True, the linen manufacturer would then have been obliged to
hold back a larger portion of his capital as money reserve, and
likewise the merchant, now transformed into an industrial cap¬
italist. On the other nand, if the merchant remains merchant,
the manufacturer saves time in selling, which he can devote to
supervising the production process, while the merchant must
apply all his time to selling.

If merchant’s capital does not overstep its necessary propor¬
tions, it is to be inferred,

1) that as a result of the division of labour the capital devoted
exclusively to buying and selling (and this includes not only
the money required to buy commodities, but also the money which
must be invested in labour to maintain the merchant's establish¬
ment, and in his constant capital — the storehouses, transport,
etc.) is smaller than it would be if the industrial capitalist were
constrained to carry on the entire commercial part of his business
on his own;

2) that because the merchant devotes all his time exclusively
to this business, the producer is able to convert his commodities
more rapidly into money, and, moreover, the commodity-capi¬
tal itself passes more rapidly through its metamorphosis than it
would in the hands of the producer;

3) that in viewing the aggregate merchant’s capital in its re¬
lation to industrial capital, one turnover of merchant’s capital
may represent not only the turnovers of many capitals in one
sphere of production, but the turnovers of a number of capitals
in different spheres of production. The former is the case when,

276

MERCHANT'S CAPITAL

for instance, the linen merchant, after buying the product of some
linen manufacturer with his £3,000, sells it before the same manu¬
facturer brings another lot of the same quantity to market, and
buys, and again sells, the product of another, or several other,
linen manufacturers, thus effecting the turnovers of different cap¬
itals in the same sphere of production. The latter is the case if,
for example, the merchant after selling his linen buys silk,
thus effecting the turnover of a capital in a different sphere of
production.

In general, it may be noted that the turnover of industrial cap¬
ital is limited not by the time of circulation alone, but also
by the time of production. The turnover of merchant’s capital
dealing in one kind of commodity is not merely limited by the
turnover of a single industrial capital, but by that of all indus¬
trial capitals in the same branch of production. After the merchant
has bought and sold the linen of one producer he can buy and
sell that of another, before the first brings another lot to the
market. The same merchant’s capital may, therefore, successively
promote the different turnovers of capitals invested in a certain
branch of production, with the effect that its turnover is not iden¬
tical with the turnovers of a sole industrial capital, and does
not therefore replace just the single money reserve which that
one industrial capitalist would have had to hold in petto. The
turnover of merchant’s capital in one sphere of production is
naturally restricted by the total production of that sphere. But
it is not restricted by the scale of production, or the period of
turnover, of any one capital of the same sphere, so far as its period
of turnover is qualified by its time of production. Suppose, A
supplies a commodity requiring three months for its production.
After the merchant has bought and sold it, say, in one month,
he can buy and sell the same product of some other manufacturer.
Or after he has sold, say, the corn of one farmer, he can buy and
sell that of another with the same money, etc. The turnover of
his capital is restricted by the mass of corn he is able to buy and
sell successively within a certain period, for instance, in one year,
while the turnover of the farmer’s capital is, regardless of the time
of turnover, restricted by the time of production, which lasts
one year.

However, the turnover of the same merchant’s capital may
equally well effect the turnovers of capitals in different branches
of production.

In so far as the same merchant’s capital serves in different turn¬
overs to transform different commodity-capitals successively into

COMMERCIAL CAPITAL

277

money, buying and selling them one after another, it performs
the same function in its capacity of money-capital with regard
to commodity-capital, which money in general performs by means
of the number of its turnovers in a given period with regard to
commodities.

The turnover of merchant’s capital is not identical with the
turnover, or a single reproduction, of an industrial capital of equal
size; it is rather equal to the sum of the turnovers of a number of
such capitals, whether in the same or in different spheres of
production. The more quickly merchant’s capital is turned over,
the smaller the portion of total money-capital serving as mer¬
chant s capital; and conversely, the more slowly it is turned over,
the larger this portion. The less developed production, the larger
the sum of merchant’s capital in its relation to the sum of the
commodities thrown into circulation; but the smaller in absolute
terms, or in comparison with more developed conditions, and
vice versa. In such undeveloped conditions, therefore, the greater
part of the actual money-capital is in the hands of merchants,
whose fortune constitutes money wealth vis-h-vis the others.

The velocity of circulation of the money-capital advanced by
the merchant depends 1) on the speed with which the process of
production is renewed and the different processes of production
are linked together; and 2) on the velocity of consumption.

To accomplish the turnover we have examined above, mer¬
chant’s capital does not first have to buy commodities for its full
amount of value, and then to sell them. Instead, the merchant
performs both movements simultaneously. His capital then breaks
up into two parts. One of them consists of commodity-capital,
and the other of money-capital. He buys and converts his money
into commodities at one place. Elsewhere, he sells and converts
another part of his commodity-capital into money. On one side,
his capital returns to him in the form of money-capital, while on
the other he gets commodity-capital. The larger the portion in one
form, the smaller the portion in the other. This alternates and
balances itself. If the use of money as a medium of circulation
combines with its use as a means of payment and the attendant
development of the credit system, then the money-capital part of
merchant’s capital is reduced still more in relation to the volume of
the transactions this merchant’s capital effects. If I buy £3,000
worth of wine on three months' credit and sell all the wine for cash
before this term expires, I do not need to advance a single penny
for these transactions. In this case it is also quite obvious that the
money-capital, which here acts as merchant's capital, is nothing

10—2494

278

MERCHANT’S CAPITAL

more than industrial capital in its money-capital form, in its
process of reflux in the form of money. (The fact that the manu¬
facturer who sold £3,000 worth of wine on three months’ credit
may discount his promissory note at the banker’s does not alter
the matter at all and has nothing to do with the merchant’s cap¬
ital.) If market-prices should fall in the meantime by, say,

the merchant, far from making a profit, would recover only £2,700
instead of £3,000. He would have to put up £300 out of his own
pocket. These £300 would serve merely as a reserve to balance
the difference in price. But the same applies to the manufacturer.
If he himself had sold at falling prices, he w7ould likewise have
lost £300, and would not be able to resume production on the
same scale without reserve capital.

The linen merchant buys £3,000 worth of linen from the manu¬
facturer. The latter pays, say, £2,000 of the £3,000 for yarn.
He buys this yarn from a yarn dealer. The money which the man¬
ufacturer pays to the yarn dealer is not the linen dealer’s money,
for the latter has received commodities to this amount. It is the
money-form of the manufacturer’s own capital. Now in the hands
of the yarn dealer these £2,000 appear as returned money-capital.
But to what extent are they that as distinct from the £2,000 rep¬
resenting the discarded money-form of the linen and the assumed
money-form of the yarn? If the yarn dealer bought on credit and
sold for cash before the expiration of his term of payment, then
these £2,000 do not contain one penny of merchant's capital as
distinct from the money-form which the industrial capital itself
assumes in the course of its circuit. In so far as commercial capi¬
tal is not, therefore, just a form of industrial capital in the mer¬
chant’s hands as commodity- or money-capital, it is nothing but
that portion of money-capital which belongs directly to the
merchant and circulates in the purchase and sale of commodities.
On a reduced scale this portion represents that part of capital
advanced for production which should always have to be in the
hands of the industrialist as money reserve and means of purchase,
and which should always have to circulate as his money-capital.
This portion, on a reduced scale, is now in the hands of merchant
capitalists and performs its functions as such in the process of
circulation. It is that portion of the total capital which, aside
from what is expended as revenue, must continually circulate on
the market as a means of purchase in order to maintain the con¬
tinuity of the process of reproduction. The more rapid the process
of reproduction, and the more developed the function of money

COMMERCIAL CAPITAL

279

as a means of payment, i.e., the more developed the credit
system,38 the smaller that portion is in relation to the total
capital.

Merchant’s capital is simply capital functioning in the sphere
of circulation. The process of circulation is a phase of the total
process of reproduction. But no value is produced in the process
of circulation, and, therefore, no surplus-value. Only changes of
form of the same mass of value take place. In fact, nothing occurs
there outside the metamorphosis of commodities, and this has
nothing to do as such either with the creation or change of values.
If a surplus-value is realised in the sale of produced commodities,
then this is only because it already existed in them. In the second
act, the re-exchange of money-capital against commodities (ele¬
ments of production), the buyer therefore does not realise any
surplus-value either. He merely initiates the production of surplus-
value through exchanging his money for means of production
and labour-power. But so far as these metamorphoses requiie
circulation time— time during which capital does not produce

88 To be able to classify merchant’s capital as productive capital, Ram¬
say confounds it with the transportation industry and calls commerce “the
transport of commodities from one place to another.” {An Essay on the
Distribution of Wealth, p. 19.) The same confusion by Verrl (Meditazioni
sulla Economic Politica, § 4 [In: Scrittori classici italiant di economic
politica. Parte moderna, t. XV, p. 32. — Ed. ]) and by Say (Traitf d’economie
politique, 1, 14, 15). In his Elements of Political Economy (Andover and
New York, 1835) S.P. Newman says: “In the existing economical arrange¬
ments of society, the very act, which is performed by the merchant, of
standing between the producer and the consumer, advancing to the former
capital and receiving products in return, and then handing over these prod¬
ucts to the latter, receiving back capital in return, is a transaction which
both facilitates the economical processes of the community, and adds value
to the products in relation to which it is performed ” (p. 174). Producer and
consumer thus save time and money through the intervention of the
merchant. This service requires an advance of capital and labour, and must be
rewarded, “since it adds value to products, for the same products in the hands
of consumers are worth more than in the hands of producers. " And so com¬
merce appears to him, as it does to M. Say, as “strictly an act of production"
(p. 175). This Newman’s view is fundamentally wrong. The use-value of
a commodity is greater in the hands of the consumer than in those of the
producer, because it is Erst realised by the consumer. For the use-value of
a commodity does not serve its end, does not begin to function until the
commodity enters the sphere of consumption. So long as it is in the hands
of the producer, it exists only in potential form. But one does not pay twice
for a commodity — Erst for its exchange-value, and then for its use-value.
By paying for its exchange-value, I appropriate its use-value. And its
exchange-value is not in the leagt augmented by transferring the commodity
from the producer or middleman to the consumer.

280

MERCHANT'S CAPITAL

at all, least of all surplus-value — it restricts the creation of
values, and the surplus-value expresses itself through the rate of
profit in inverse ratio to the duration of the circulation period.
Merchant's capital, therefore, does not create either value or
surplus-value, at least not directly. In so far as it contributes to
shortening the time of circulation, it may help indirectly to
increase the surplus-value produced by the industrial capitalists.
In so far as it helps to expand the market and effects the division
of labour between capitals, hence enabling capital to operate on
a larger scale, its function promotes the productivity of indus¬
trial capital, and its accumulation. In so far as it shortens circula¬
tion time, it raises the ratio of surplus-value to advanced capital,
hence the rate of profit. And to the extent that it confines a smaller
portion of capital to the sphere of circulation in the form of money-
capital, it increases that portion of capital which is engaged
directly in production.

CHAPTER XVII

COMMERCIAL PROFIT

We have seen- in Book II* that the pure functions of capital
in the sphere of circulation — the operations which the industrial
capitalist must perform, first, to realise the value of his com¬
modities, and second, to reconvert this value into elements of
production, operations effecting the metamorphosis of commodity-
capital, C' — M— C, hence the acts of selling and buying — produce
neither value nor surplus-value. It was rather seen that the time
required for this purpose, objectively in regard to commodities and
subjectively in regard to the capitalist, sets the limit to the pro¬
duction of value and surplus-value. What is true of the metamor¬
phosis of commodity-capital in general, is, of course, not in the
least altered by the fact that a part of it may assume the shape of
commercial capital, or that the operations, effecting the metamor¬
phosis of commodity-capital, appear as the special concern of a
special group of capitalists, or as the exclusive function of a
portion of the money-capital. If selling and buying commodities —
and that is what the metamorphosis of commodity-capital
C'— M — C amounts to — by industrial capitalists themselves are not
operations which create value or surplus-value, they will certainly
not create either of these when carried out by persons other than
the industrial capitalists. Furthermore, if that portion of the
total social capital, which must continually be on hand as money-
capital, in order that the process of reproduction is not interrupt¬
ed by the process of circulation and proceeds continuously — if
this money-capital creates neither value nor surplus-value, it
cannot acquire the properties of creating them by being continu¬
ally thrown into circulation by some section of capitalists other
than the industrial capitalists, to perform the same function. We

• English edition: Vol. II, pp. 86-99. — Ed.

282

MERCHANT’S CAPITAL

have already indicated to what extent merchant's capital may be
indirectly productive, and we shall later discuss this point at
greater length.

Commercial capital, therefore — stripped of all heterogeneous
functions, such as storing, expressing, transporting, distributing,
retailing, which may be connected with it, and confined to its
true function of buying in order to sell — creates neither value nor
surplus-value, but acts as middleman in their realisation and
thereby simultaneously in the actual exchange of commodities, i.e.,
in their transfer from hand to hand, in the social metabolism.
Nevertheless, since the circulation phase of industrial capital is just
as much a phase of the reproduction process as production is, the
capital operating independently in the process of circulation must
yield the average annual profit just as well as capital operating in
the various branches of production. Should merchant’s capital
yield a higher percentage of average profit than industrial capital,
then a portion of the latter would transform itself into merchant’s
capital. Should it yield a lower average profit, then the converse
would result. A portion of the merchant’s capital would then be
transformed into industrial capital. No species of capital changes
its purpose, or function, with greater ease than merchant’s capital.

Since merchant’s capital does not itself produce surplus-value,
it is evident that the surplus-value which it pockets in the form
of average profit must be a portion of the surplus-value produced
by the total productive capital. But now the question arises: How
does merchant’s capital attract its share of the surplus-value or
profit produced by the productive capital?

It is just an illusion that commercial profit is a mere addition
to, or a nominal rifee of, the prices of commodities in excess of
their value.

It is plain that the merchant can draw his profit only out of the
price of the commodities he sells, and plainer still that the profit
he makes in selling his commodities must be equal to the difference
between his purchase price and his selling price, i.e., equal
to the excess of the latter over the former.

It is possible that additional costs (costs of circulation) may
enter into the commodities after their purchase and before their
sale, and it is also possible that this may not happen. If such
costs should occur, it is plain that the excess of the selling price
over the purchase price would not be all profit. To simplify the
analysis, we shall assume at this point that no such costs occur.

For the industrial capitalist the difference between the selling
price and the purchase price of his commodities is equal to the

COMMERCIAL PROFIT

283

difference between their price of production and their cost-price,
or, from the standpoint of the total social capital, equal to the differ¬
ence between the value of the commodities and their cost-price
for the capitalists, which again comes down to the difference be¬
tween the total quantity of labour and the quantity of paid labour
incorporated in them. Before the commodities bought by the
industrial capitalist are thrown back on the market as saleable
commodities, they pass through the process of production, in which
alone the portion of their price to be realised as profit is created.
But it is different with the merchant. The commodities are in his
hands only so long as they are in the process of circulation. He
merely continues their sale, the realisation of their price which
was begun by the productive capitalist, and therefore does not
cause them to pass through any intermediate process in which
they could again absorb surplus-value. While the industrial
capitalist merely realises the previously produced surplus-value, or
profit, in the process of circulation, the merchant has not only to
realise his profit during and through circulation, but must first
make it. There appears to be no other way of doing this outside
of selling the commodities bought by him from the industrial
capitalist at their prices of production, or, from the standpoint of
the total commodity-capital, at their values in excess of their prices
of production, making a nominal extra charge to their prices,
hence, selling them, from the standpoint of the total commodity-
capital, above their value, and pocketing this excess of their
nominal value over their real value; in short, selling them for
more than they are worth.

This method of adding an extra charge is easy to grasp. For
instance, one yard of linen costs 2s. If I want to make a 10% profit
in reselling it, I must add 1/10 to the price, hence sell the yard
at 2s. 2a/sd. The difference between its actual price of production
and its selling price is then=2a/6d., and this represents a profit
of 10% on 2s. This amounts to my selling the yard to the buyer
at a price which is in reality the price of l*/io yard. Or, what
amounts to the same, it is as though I sold to the buyer only 10 /u
of a yard for 2s. and kept 1/11 of a yard for myself. In fact I can
buy back 1/J1 of a yard for 2a/4d. at the price of 2s. 2a/5d. per
yard. This would, therefore, be just a roundabout way of sharing
in the surplus-value and surplus-product by a nominal rise in the
price of commodities.

This is realisation of commercial profit by raising the price of
commodities, as it appears at first glance. And, indeed, this whole
notion that profit originates from a nominal rise in the price of

284

MERCHANT’S CAPITAL

commodities, or from their sale above their value, springs from
the observations of commercial capital.

But it is quickly apparent on closer inspection that this is mere
illusion. Assuming capitalist production to be predominant, com¬
mercial profit cannot be realised in this manner. (It is here always
a question of averages, not of isolated cases.) Why do we assume
that the merchant can realise a profit of no more than, say, 10%
on his commodities by selling them 10% above their price of pro¬
duction? Because we assume that the producer of these commodi¬
ties, the industrial capitalist (who appears as the producer before
the outside world, being the personification of industrial capital),
had sold them to the dealer at their prices of production. If the
purchase price of commodities paid by the dealer is equal to their
price of production, or, in the last instance, equal to their value,
so that the price of production or, in the last instance, the value,
represent the merchant’s cost-price, then, indeed, the excess of
his selling price over his purchase price — and this difference
alone is the source of his profit — must be an excess of their com¬
mercial price over their price of production, so that in the final
analysis the merchant sells all commodities above their values.
But why was it assumed that the industrial capitalist sells his
commodities to the merchant at their prices of production? Or
rather, what was taken for granted in that assumption? It was that
merchant’s capital did not go into forming the general rate of prof¬
it (we are dealing with it as yet only in its capacity of commer¬
cial capital). We proceeded necessarily from this premise in dis¬
cussing the general rate of profit, first, because merchant’s capital
as such did not exist for us at the time, and, second, because aver¬
age profit, and hence the general rate of profit, had first to be de¬
veloped as a levelling of profits or surplus-values actually produced
by the industrial capitals in the different spheres of production.
But in the case of merchant’s capital we are dealing with a
capital which shares in the profit without participating in its
production. Hence, it is now necessary to supplement our earlier
exposition.

Suppose, the total industrial capital advanced in the course
of the year ==720o-fl80y =900 (say million £), and that s' =100%.
The product therefore=720o+180v-f-180s. Let us call this prod¬
uct or the produced commodity-capital, C, whose value, or price
of production (since both are identical for the totality of commodi¬
ties)^, 080, and the rate of profit for the total social capital of
900=20%. These 20% are, according to our earlier analyses, the
average rate of profit, since the surplus-value is not calculated

COMMERCIAL PROFIT

285

here on this or that capital of any particular composition, but on
the total industrial capital of average composition. Thus, C=l,080,
and the rate of profit =20%. Let us now assume, however, that
aside from these £900 of industrial capital, there are still £100 of
merchant's capital, which shares in the profit pro rata to its mag¬
nitude just as the former. According to our assumption, it is V,0
of the total capital of 1,000. Therefore, it participates to the
extent of Vl0 in the total surplus-value of 180, and thus secures
a profit of 18%. Actually, then, the profit to be distributed among
the other ®/l0 of the total capital is only =162, or on the capital
of 900 likewise = 18%. Hence, the price at which C is sold by
the owners of the industrial capital of 900 to the merchants =
= 7 20o -(- 1 80v -f- 162b= 1,062. If the dealer then adds the average
profit of 18% to his capital of 100, he sells the commodities at
1,062+18=1,080, i.e., at their price of production, or, from the
standpoint of the total commodity-capital, at their value,
although he makes his profit only during and through the circu¬
lation process, and only from an excess of his selling price over
his purchase price. Yet he does not sell the commodities above
their value, or above their price of production, precisely because
he has bought them from the industrial capitalist below their
value, or below their price of production.

Thus, merchant’s capital enters the formation of the general
rate of profit as a determinant pro rata to its part in the total
capital. Hence, if we say in the given case that the average rate
of profit =18%, it would = 20%, if it were not that V10 of the total
capital was merchant’s capital and the general rate of profit
thereby lowered by 1/10. This leads to a closer and more compre¬
hensive definition of the price of production. By price of pro¬
duction we mean, just as before, the price of a commodity = its
costs (the value of the constant+variable capital contained in
it)+the average profit. But this average profit is now determined
differently. It is determined by the total profit produced by the
total productive capital; but not as calculated on the total pro¬
ductive capital alone, so that if this=900, as assumed above,

and the profit = 180, then the average rate of pro fit =^=20%.

But, rather, as calculated on the total productive+merchant's
capital, so that with 900 productive and 100 merchant’s capital,

180

the average rate of profit= j-qqq“ = 18%. The price of production is,

therefore=k (the costs)+18, instead of k+20. The share of the
total profit falling to merchant’s capital is thus included in

286

MERCHANT’S CAPITAL

the average rate of profit. The actual value, or price of production,
of the total commodity-capital is therefore = k+p+m (where
m is commercial profit). The price of production, or the price
at which the industrial capitalist as such sells his commodities,
is thus smaller than the actual price of production of the commod¬
ity; or in terms of all commodities taken together, the prices
at which the class of industrial capitalists sell their commodities
are lower than their valu&. Hence, in the above case, 900 (costs) +
+ 18% on 900, or 900+162 = 1,062. It follows, then, that in
selling a commodity at 118 for which he paid 100 the merchant
does, indeed, add 18% to the price. But since this commodity,
for which he paid 100, is really worth 118, he does not sell it above
its value. We shall henceforth use the term price of production
in this, its morp precise, sense. It is evident, therefore, that the
profit of the industrial capitalist equals the excess of the price
of production of the commodity over its cost-price, and that
commercial profit, as distinct from this industrial profit, equals
the excess of the selling price over the price of production of
the commodity which, for the merchant, is its purchase price;
but that the actual price of the commodity=its price of produc-
tion+the commercial profit. Just as industrial capital realises
only such profits as already exist in the value of commodities
as surplus-value, so merchant’s capital realises profits only
because the entire surplus-value, or profit, has not as yet been
fully realised in the price charged for the commodities by the
industrial capitalist.39 The merchant’s selling price thus exceeds
the purchase price not because the former exceeds the total
value, but because the latter is below this value.

Merchant's capital, therefore, participates in levelling surplus-
value to average profit, although it does not take part in its
production. Thus, the general rate of profit contains a deduction
from surplus-value due to merchant’s capital, hence a deduction
from the profit of industrial capital.

It follows from the foregoing:

1) The larger the merchant’s capital in proportion to the
industrial capital, the smaller the rate of industrial profit, and
vice versa.

2) It was demonstrated in the first part that the rate of profit
is always lower than the rate of the actual surplus-value, i.e.,
it always understates the intensity of exploitation, as in the

33 John Bellers [ Essays about the Poor, Manufactures, Trade, Planta¬
tions, and Immorality, London, 1699, p. 10.— Ed. ].

COMMERCIAL PROFIT

287

above case, 720o+180v+1808, the rate of surplus-value of 100%
and a rate of profit of only 20%. And the difference becomes
still greater, inasmuch as the average rate of profit appears smaller
again, dropping from 20% to 18%, if the share falling to
merchant’s capital is also taken into account. The average rate of
profit of the direct capitalist exploiter, therefore, expresses a
rate of profit smaller than it actually is.

Assuming all other circumstances remaining the same, the
relative volume of merchant’s capital (with the exception of the
small dealer who represents a hybrid form) is in inverse proportion
to the velocity of its turnover, hence in inverse proportion to the
energy of the process of reproduction in general. In the course of
scientific analysis, the formation of a general rate of profit ap¬
pears to result from industrial capitals and their competition,
and is only later corrected, supplemented, and modified by the
intervention of merchant’s capital. In the course of its historical
development, however, the process is really reversed. It is the
commercial capital which first determines the prices of commod¬
ities more or less in accordance with their values, and it is the
sphere of circulation, the sphere that promotes the process of
reproduction, in which a general rate of profit initially takes
shape. It is originally the commercial profit which determines
the industrial profit. Not until the capitalist mode of production
has asserted itself and the producer himself has become
merchant, is commercial profit reduced to that aliquot part of the
total surplus-value falling to the share of merchant’s capital as
an aliquot part of the total capital engaged in the social process
of reproduction.

It was seen in the supplementary equalisation of profit through
the intervention of merchant’s capital that no additional element
entered the value of commodities with the merchant’s advanced
money-capital, and that the extra charge to the price, whereby
the merchant makes his profit, was merely equal to that portion
of the value of the commodities, which productive capital had
not calculated in the price of production, i.e., had left out. The
case of this money-capital is similar to that of the industrial
capitalist’s fixed capital, since it is not consumed and its value,
therefore, does not make up an element of the value of commodity.
It is in the purchase price of commodity-capital that the mer¬
chant replaces its price of production=M, in money. His own
selling price, as previously shown, is=*M-}-AM, where AM
stands for the addition to the price of commodities determined
by the general rate of profit. Once he sells the commodities,

288

MERCHANT'S CAPITAL

his original money-capital, which he advanced for their purchase,
returns to him together with this AM. We see once more that his
money-capital is nothing but the industrial capitalist’s commod¬
ity-capital transformed into money-capital, which affects the
magnitude of the value of this commodity-capital no more than
would a direct sale of the latter to the ultimate consumer, instead
of to the merchant. It, actually, merely anticipates the payment
of the consumer. However, this is correct only on the condition
hitherto assumed, that the merchant has no overhead expenses,
or that aside from the money-capital which he must advance to
buy commodities from the producer he need not advance any
other capital, circulating or fixed, in the process of commodity
metamorphosis, the process of buying and selling. But this is
not so in reality, as we have seen in the analysis of the costs of
circulation (Book II, Chap. VI). These costs of circulation are
partly expenses which the merchant has to reclaim from other
agents of circulation, and partly expenses arising directly from
his specific business.

No matter what the nature of these costs of circulation — whether
they arise from the purely commercial nature of the merchant’s
establishment as such and hence belong to the merchant’s specific
costs of circulation, or represent items which are charges for
subsequent processes of production added in the process of cir¬
culation, such as expressage, transport, storage, etc. — they always
require of the merchant, aside from his money-capital, advanced
to the purchase of commodities, some additional capital for the
purchase and payment of such means of circulation. As much
of this element of cost as consists of circulating capital passes
wholly as an additional element into the selling price of the
commodities; and as much of it as consists of fixed capital only
to the extent of its wear and tear. But only as an element which
forms a nominal value, even if as the purely commercial costs
of circulation, it does not add any real value to the commodities.
But whether fixed or circulating, this entire additional capital
participates in forming the general rate of profit.

The purely commercial costs of circulation (hence, excluding
costs of expressage, shipping, storage, etc.) resolve themselves
into costs required to realise the value of commodities, to trans¬
form it from commodities into money, or from money into com¬
modities, to effect their exchange. We leave entirely out of
consideration all possible processes of production which may
continue in the process of circulation, and from which the mer¬
chant’s business can be altogether separated; as, in fact, the

COMMERCIAL PROFIT

289

actual transport industry and expressage may be, and are, indus¬
trial branches entirely distinct from commercial; and purchase-
able and saleable commodities may be stored in docks or
in other public premises, with the resultant cost of storage being
charged to the merchant by third persons inasmuch as he has
to advance it. All this takes place in actual wholesale commerce,
where merchant’s capital appears in its purest form, unmixed
with other functions. The express company owner, the railway
director, and the shipowner, are not “merchants. ” The costs
which we consider here are those of buying and selling. We have
already remarked earlier that these resolve themselves into
accounting, book-keeping, marketing, correspondence, etc. The
constant capital required for this purpose consists of offices,
paper, postage, etc. The other costs break up into variable capital
advanced for the employment of mercantile wage-workers.
(Expressage, transport costs, advances for customs duties, etc.,
may partly be considered as being advanced by the merchant in
purchasing commodities and thus enter the purchase price as
far as he is concerned.)

All these costs are not incurred in producing the use-value of
commodities, but in realising their value. They are pure costs
of circulation. They do not enter into the immediate process of
production, but since they are part of the process of circulation
they are also part of the total process of reproduction.

The only portion of these costs of interest to us at this point
is that advanced as variable capital. (The following questions
should also be analysed: First, how does the law that only neces¬
sary labour enters the value of commodities operate in the process
of circulation? Second, how does accumulation obtain in mer¬
chant’s capital? Third, how does merchant’s capital function in
the actual aggregate reproduction process of society?)

These costs arise due to the product having the economic
form of a commodity.

If the labour-time which the industrial capitalists themselves
lose while directly selling commodities to one another — hence,
speaking objectively, the circulation time of the commodities —
does not add value to these commodities, it is evident that this
labour-time does not change its nature in the least by failing to
the merchant instead of the industrial capitalist. The conversion
of commodities (products) into money, and of money into com¬
modities (means of production) is a necessary function of indus¬
trial capital and, therefore, a necessary operation of the capitalist
— who is actually but personified capital endowed with a

290

MERCHANT’S CAPITAL

consciousness of its own and a will. But these functions neither
create value, nor produce surplus-value. By performing these
operations and carrying on the functions of capital in the sphere
of circulation after the productive capitalist has ceased to be
involved the merchant merely takes the place of the industrial
capitalist. The labour-time required in these operations is
devoted to certain necessary operations of the reproduction process
of capital, but yields no additional value. If the merchant did
not perform these operations (hence, did not expend the labour¬
time entailed), he would not be applying his capital as a circu¬
lation agent of industrial capital; he would not then be continu¬
ing the interrupted function of the industrial capitalist, and
consequently could not participate as a capitalist pro rata to
his advanced capital, in the mass of profit produced by industrial
capitalists. In order to share in the mass of surplus-value, to
expand the value of his advance as capital, the commercial
capitalist need not employ wage-workers. If his business and
capital are small, he may be the only worker in it. He is paid
with that portion of the profit which falls to him through the
difference between the purchase price paid by him for commod¬
ities and their actual price of production.

But, on the other hand, the profit realised by the merchant
on a small amount of advanced capital may be no larger, or
may even be smaller, than the wages of one of the better-paid
skilled wage-workers. In fact, he brushes shoulders with many
direct commercial agents of the productive capitalist, such as
buyers, sellers, travellers, who enjoy the same or a higher income
either in the form of wages, or in the form of a share in the profit
(percentages, bonuses) made from each sale. In the first case,
the merchant pockets the mercantile profit as an independent
capitalist; in the other, the salesman, the industrial capitalist’s
wage-labourer, receives a portion of the profit either in the form
of wages, or as a proportional share in the profit of the industrial
capitalist, whose direct agent he is, while his employer pockets
both the industrial and the commercial profit. But in all these
cases, although his income may appear to the circulation agent
as an ordinary wage, as payment for work performed, and although,
where it does not so appear, the profit may be no larger than the
wage of a better-paid labourer, his income is derived solely
from the mercantile profit. This follows from his labour not being
labour which produces value.

The lengthening of the act of circulation represents for the
industrial capitalist 1) a personal loss of time, since it prevents

COMMERCIAL PROFIT

291

him from performing in person his function as manager of the
productive process; 2) a longer stay of his product in money- or
commodity-form, in the circulation process, hence in a process
where it does not expand value and where the direct production
process is interrupted. If this process is not to be interrupted,
production must either be curtailed, or more money-capital
must be advanced to maintain the process of production on the
same scale. This means that each time either a smaller profit
is made on the capital hitherto invested, or that additional
money-capital must be advanced to make the previous profit.
All this remains unchanged when the merchant takes the place
of the industrial capitalist. Instead of the industrial capitalist
devoting more time to the process of circulation, it is the mer¬
chant who is so engaged; instead of the industrial capitalist it
is the merchant who advances additional capital for circulation;
or, what amounts to the same thing, instead of a large portion
of the industrial capital being continually diverted into the
process of circulation, it is the merchant’s capital which is
wholly tied up in it; and instead of making a smaller profit,
the industrial capitalist must yield a portion of his profit wholly
to the merchant. So long as merchant’s capital remains within
the bounds in which it is necessary, the only difference is that
this division of the functions of capital reduces the time exclu¬
sively used up in the process of circulation, that less additional
capital is advanced for this purpose, and that the loss in total
profit, represented by mercantile profit, is smaller than it would
otherwise have been. If in the above example, 720o+180v-|-1803,
assisted by a merchant’s capital of 100, produces a profit of
162, or 18%, for the industrial capitalist, hence implying a
deduction of 18, then, but for this independent merchant’s
capital, the additional capital required would probably be 200,
and we should have a total advance by the industrial capitalist
of 1,100 instead of 900, which, based upon a surplus-value of
180, would yield a rate of profit of only 164/n%.

If the industrial capitalist who acts as his own merchant
advances not only the additional capital to buy new commodi¬
ties before his product in the process of circulation has been
reconverted into money, but also capital (office expenses and
wages for commercial employees) to realise the value of his
commodity-capital, or, in other words, for the process of circu¬
lation, then these supplements form additional capital, but do
not create surplus-value. They must be made good out of the
value of the commodities, because a portion of the value of these

292

MERCHANT’S CAPITAL

commodities must be reconverted into these circulation costs.
But no additional surplus-value is created thereby. So far as
this concerns the total capital of society, it means in fact that
a portion of it must be set aside for secondary operations which
are no part of the self-expansion process, and that this portion
of the social capital must be continually reproduced for this
purpose. This reduces the rate of profit for the individual capital¬
ist and for the entire class of industrial capitalists, an effect
arising from every new investment of additional capital when¬
ever such capital is required to set in motion the same mass of
variable capital.

In so far as these additional costs connected with the business
of circulation are transferred from the industrial to the commer¬
cial capitalist, there takes place a similar reduction in the rate
of profit, but to a lesser degree and in a different way. It now
develops that the merchant advances more capital than would
be necessary if these costs did not exist, and that the profit on
this additional capital increases the amount of the commercial
profit, so that more of the merchant’s capital joins industrial
capital in levelling the average rate of profit and thereby the
average profit falls. If in our above example an additional capital
of 50 is advanced besides the merchant’s capital of 100 to cover
the costs in question, then the total surplus-value of 180 is distrib¬
uted with respect to a productive capital of 900 plus a merchant’s
capital of 150, together= 1,050. The average rate of profit,
therefore, sinks to 17V7%. The industrial capitalist sells his
commodities to the merchant at 900+154*/7=l,0542/7, and the
merchant sells them at 1,130 (1,080+50 for costs which he
must recover). Moreover, it must be admitted that the division
between merchant’s and industrial capital is accompanied by a
centralisation of the commercial expenses and, consequently, by
their reduction.

The question now arises: What about the commercial wage¬
workers employed by the commercial capitalist, here the merchant?

In one respect, such a commercial employee is a wage-worker
like any other. In the first place, his labour-power is bought with
the variable capital of the merchant, not with money expended
as revenue, and consequently it is not bought for private service,
but for the purpose of expanding the value of the capital advanced
for it. In the second place, the value of his labour-power, and
thus his wages, are determined as those of other wage-workers,
i.e., by the cost of production and reproduction of his specific
labour-power, not by the product of his labour.

COMMERCIAL PROFIT

293

However, we must make the same distinction between him
and the wage-workers directly employed by industrial capital
which exists between industrial capital and merchant's capital,
and thus between the industrial capitalist and the merchant.
Since the merchant, as a mere agent of circulation, produces
neither value nor surplus-value (for the additional value which
he adds to the commodities through his expenses resolves itself
into an addition of previously existing values, although the
question here poses itself, how he preserves this value of his
constant capital?) it follows that the mercantile workers em¬
ployed by him in these same functions cannot directly create
surplus-value for him. Here, as in the case of productive labourers,
we assume that wages are determined by the value of the labour-
power, and that, hence, the merchant does not enrich himself
by depressing wages, so that he does not enter into his cost account
an advance for labour which he has paid only in part; in other
words, that he does not enrich himself through cheating his
clerks, etc.

The difficulty as concerns mercantile wage-workers is by no
means to explain how they produce direct profits for their em¬
ployer without creating any direct surplus-value (of which profit
is but a transmuted form). This question has, indeed, already
been solved in the general analysis of commercial profits. Just
as industrial capital makes profit by selling labour embodied
and realised in commodities, for which it has not paid any equiv¬
alent, so merchant’s capital derives profit from not paying
in full to productive capital for all the unpaid labour contained
in the commodities (in commodities, in so far as capital invested
in their production functions as an aliquot part of the total
industrial capital), and by demanding payment for this unpaid
portion still contained in the commodities when making a sale.
The relation of merchant’s capital to surplus-value is different
from that of industrial capital. The latter produces surplus-
value by directly appropriating the unpaid labour of others.
The former appropriates a portion of this surplus-value by having
this portion transferred from industrial capital to itself.

It is only through its function of realising values that mer¬
chant’s capital acts as capital in the process of reproduction,
and hence draws on the surplus-value produced by the total
capital. The mass of the individual merchant’s profits depends
on the mass of capital that he can apply in this process, and he
can apply so much more of it in buying and selling, the more
the unpaid labour of his clerks. The very function, by virtue of

294

MERCHANT’S CAPITAL

which the merchant’s money becomes capital, is largely done
through his employees. The unpaid labour of these clerks, while
it does not create surplus-value, enables him to appropriate
surplus-value, which, in effect, amounts to the same thing with
respect to his capital. It is, therefore, a source of profit for him.
Otherwise commerce could never be conducted on a large scale,
capitalistically.

Just as the labourer's unpaid labour directly creates surplus-
value for productive capital, so the unpaid labour of the
commercial wage-worker secures a share of this surplus-value for
merchant’s capital.

The difficulty lies here: Since the merchant’s labour-time and
labour do not create value, although they secure for him a share
of already produced surplus-value, how does the matter stand
with the variable capital which he lays out in purchasing com¬
mercial labour-power? Is this variable capital to be included in
the cost outlays of the advanced merchant’s capital? If not,
this appears to conflict with the law of equalisation of the rate of
profit; what capitalist would advance 150 if he could charge
only 100 to advanced capital? If so, it seems to conflict with the
nature of merchant’s capital, since this kind of capital does not
act as capital by setting in motion the labour of others, as indus¬
trial capital does, but rather by doing its own work, i.e., per¬
forming the functions of buying and selling, this being precisely
the means and the reason why it receives a portion of the surplus-
value produced by the industrial capital.

(We must therefore analyse the following points: the mer¬
chant’s variable capital; the law of necessary labour in the sphere
of circulation; how the merchant’s labour maintains the value
of his constant capital; the part played by merchant’s capital
in the process of reproduction as a whole; and, finally, the dupli¬
cation in commodity-capital and money-capital, on the one
hand, and in commercial capital and money-dealing capital on
the other.)

If every merchant had only as much capital as he himself were
able to turn over by his own labour, there would be infinite
fragmentation of merchant’s capital. This fragmentation would
increase in the same proportion as productive capital raised
production and operated with greater masses in the forward
march of the capitalist mode of production. Hence, an increasing
disproportion of the two. Capital in the sphere of circulation
would become decentralised in the same proportion as it became
centralised in the sphere of production. The purely commercial

COMMERCIAL PROFIT

295

business of the industrial capitalist, and thus his purely com¬
mercial expenses, would expand infinitely thereby, for he would
have to deal with, say, 1,000 merchants, instead of 100. Thus,
the advantages of independently operating merchant’s capital
would largely be lost. And not the purely commercial expenses
alone, but also the other costs of circulation, such as sorting,
expressage, etc., would grow. This, as far as the industrial capital
is concerned. Now let us consider merchant’s capital. Firstly,
the purely commercial operations. It does not take more time
to deal with large figures than with small ones. It takes ten
times as much time to make 10 purchases at £100 each as it
does to make one purchase at £1,000. It takes ten times as much
correspondence, paper, and postage, to correspond with 10 small
merchants as it does with one large merchant. The clearly defined
division of labour in a commercial office, in which one keeps
the books, another looks after money matters, a third has charge
of correspondence, one buys, another sells, a third travels, etc.,
saves immense quantities of labour-time, so that the number
of workers employed in wholesale commerce are in no way related
to the comparative size of the establishment. This is so, because
in commerce much more than in industry the same function
requires the same labour-time, whether performed on a large or
a small scale. This is the reason why concentration appears
earlier historically in the merchant's business than in the indus¬
trial workshop. Further, regarding outlays in constant capital.
One hundred small offices cost incomparably more than one large
office, 100 small warehouses more than a large one, etc. The costs
of transport, which enter the accounts of a commercial establish¬
ment at least as costs to be advanced, grow with the fragmentation.

The industrial capitalist would have to lay out more in labour
and in circulation costs in the commercial part of his business.
The same merchant’s capital, when divided among many small
capitalists, would, owing to this fragmentation, require more
labourers to perform its functions, and more merchant's capital
would, furthermore, be needed to turn over the same commodity-
capital.

Suppose B is the entire merchant's capital directly applied in
buying and selling commodities, and b the corresponding varia¬
ble capital paid out in wages to the commercial employees.
Then B-fb is smaller than the total merchant’s capital, B, would
be if every merchant had to get along without assistants, hence
would invest nothing in b. However, we have not yet overcome
the difficulty.

296

MERCHANT’S capital

The selling price of the commodities must suffice 1) to pay the
average profit on B-|-b. This is explained if only by the fact
that B-f-b is generally a reduction of the original B, representing
a smaller merchant's capital than would be required without b.
But this selling price must suffice 2) to cover not only the addi¬
tional profit on b, but to replace also the paid wages, the mer¬
chant’s variable capital = b. This last consideration gives rise
to the difficulty. Does b represent a new constituent of the
price, or is it merely a part of the profit made by means of
B+b, which appears as wages only so far as the mercantile
wage-worker is concerned, and as concerns the merchant simply
replaces variable capital? In the latter case, the merchant’s
profit on his advanced capital B + b would just equal the profit
due to B by virtue of the general rate, plus b, which he pays out
in the form of wages, but which does not itself yield a profit

The crux of the matter is, indeed, to find the limits (mathemati¬
cally speaking) of b. Let us first accurately define the problem.
Let B stand for capital invested directly in buying and selling
commodities, K for the constant capital (actual handling costs)
consumed in this function, and b for the variable capital invested
by the merchant.

Recovering B offers no difficulties at all. For the merchant
it is simply the realised purchase price, and the price of produc¬
tion for the manufacturer. It is the price paid by the merchant,
and in reselling he recovers B as part of his selling price; in addi¬
tion to this B, he makes a profit on B, as previously explained.
For example, let the commodity cost £100. Suppose the profit
is 10%. In that case, the commodity is sold at 110. The commod¬
ity previously cost 100, and the merchant's capital of 100 merely
adds 10 to it.

Now if we look at K, it is at most as large as, but in fact smaller
than, the portion of constant capital which the producer would
use up in buying and selling, but then it would form an addition
to the constant capital he requires directly in production. This
portion, nonetheless, must be continually recovered in the price
of the commodity, or, what amounts to the same, a correspond¬
ing portion of the commodity must be continually expended in
this form, or, from the standpoint of the total capital of society,
must be continually reproduced in this form. This portion of
the advanced constant capital would have a limiting effect on
the rate of profit, just as the entire mass of it directly invested
in production. In so far as the industrial capitalist leaves the
commercial part of his business to the merchant, he need not

COMMERCIAL PROFIT

297

advance this part of the capital. The merchant advances it in
his stead. In a way, he does this but nominally, since a merchant
neither produces, nor reproduces, the constant capital consumed
by him (the actual handling costs). Its production appears a
separate business, or at least a part of the business, of some
industrial capitalists who thus play a role similar to those who
supply constant capital to producers of necessities of life. First,
therefore, the merchant has this constant capital recovered for
him and, secondly, receives his profit on it. Through both of
these, therefore, the industrial capitalist’s profit is reduced. But
owing to economising and concentration which are bound up
with division of labour, it shrinks less than it would if he himself
had to advance this capital. The reduction in the rate of profit
is less, because the capital thus advanced is less.

So far, then, the selling price is made up of B+K+the profit
on B+K. This portion of it offers no further difficulties. But
now b, the variable capital advanced by the merchant, enters
into it.

The resultant selling price is B + K-f-b+the profit on B+K+
+the profit on b.

B merely recovers the purchase price and adds nothing' to it
but the profit on B. K adds the profit on K, and K itself; but
K+the profit on K, the part of the circulation costs advanced in
the form of constant capital+the corresponding average profit,
would be larger in the hands of the industrial capitalist than in
the merchant’s. The shrinking of the average profit appears in
the form of the full average profit calculated after deducting
B-fK from the advanced industrial capital, with the deduction
from the average profit on B+K. paid to the merchant, so that
this deduction appears as the profit of a specific capital, mer¬
chant’s capital.

But the situation is different with respect to b+the profit on
b, or, in the present case, where the rate of profit is assumed =
= 10%, with b+V10b. And the real difficulty lies here.

What the merchant buys with b is, according to our assump¬
tion, nothing but commercial labour, hence labour required to
perform the functions of circulating capital, C— M and M— C.
But commercial labour is the labour generally necessary for
a capital to operate as merchant's capital, to help convert com¬
modities into money and money into commodities. It is labour
which realises, but does not create, values. And only in so far
as a capital performs these functions — hence a capitalist per¬
forms these operations, or this work with his capital — does it

298

MERCHANT’S CAPITAL

serve as merchant’s capital and participate in regulating the
general rate of profit, i.e., draw its dividends out of the total
profit. But (b + the profit on b) appears to include, first, payment
for labour (for it makes no difference whether the industrial
capitalist pays the merchant for his own labour, or the labour
of the clerks paid by the merchant), and, secondly, the profit
on the payment for this labour, which the merchant would have
to perform in person. First, merchant’s capital gets its b refund¬
ed, and, secondly, he makes the profit on it. This arises from
the fact, therefore, that, first, it requires payment for the work
whereby it operates as merchant's capital, and that, secondly,
it demands the profit, because it operates as capital, i.e., because
it performs work for which profit is paid to it as functioning
capital. This is, therefore, the question to be solved.

Let us assume that B = 100, b = 10, and the rate of profit=10%.
We take it that K=0, in order to leave out of consideration this
element of the purchase price, which does not belong here and
has already been accounted for. Hence, the selling price would =
=B+p+b+p (=B+Bp'+b+bp'; where p stands for the rate
of profit)= 100+10+10+ 1 = 121.

But if b were not invested by the merchant in wages— since b
is paid only for commercial labour, hence labour required, to
realise the value of the commodity-capital thrown on the market
by industrial capital— the matter would stand as follows: to buy
or sell for B = 100, the merchant would devote his time, and
we wish to assume that this is the only time at his disposal.
The commercial labour represented by b, or 10, if paid for by
profit instead of wages, would presuppose another merchant’s
capital=100, since at 10% this makes b = 10. This second B = 100
would not additionally go into the price of commodities, but
the 10% would. There would, hence, be two operations at 100=
=200, that would buy commodities at 200+20=220.

Since merchant’s capital is absolutely nothing but an indi¬
vidualised form of a portion of industrial capital engaged in
the process of circulation, all questions referring to it must be
solved by representing the problem primarily in a form,* in
which the phenomena peculiar to merchant’s capital do not
yet appear independently, but still in direct connection
with industrial capital, as a branch of it. As an office, distinct
from a workshop, mercantile capital operates continually in the
circulation process. It is here — in the office of the industrial
capitalist himself — that we must first analyse the b now under
consideration.

COMMERCIAL PROFIT

299

The office is from the outset always infinitesimally small com¬
pared to the industrial workshop. As for the rest, it is clear that
as the scale of production is extended, commercial operations
required constantly for the circulation of industrial capital, in
order to sell the product existing as commodity-capital, to recon¬
vert the money so received into means of production, and to
keep account of the whole process, multiply accordingly. Cal¬
culation of prices, book-keeping, managing funds, correspond¬
ence — all belong under this head. The more developed the
scale of production, the greater, even if not proportionately
greater, the commercial operations of the industrial capital,
and consequently the labour and other costs of circulation in¬
volved in realising value and surplus-value. This necessitates the
employment of commercial wage-workers who make up the
actual office staff. The outlay for these, although made in the
form of wages, differs from the variable capital laid out in pur¬
chasing productive labour. It increases the outlay of the indus¬
trial capitalist, the mass of the capital to be advanced, without
directly increasing surplus-value. Because it is an outlay for
labour employed solely in realising value already created. Like
every other outlay of this kind, it reduces the rate of profit be¬
cause the advanced capital increases, but not the surplus-value.
If surplus-value s remains constant while advanced capital

C increases to C+AC, then the rate of profit is replaced by the

smaller rate of profit Sr-~. The industrial capitalist endeavours,

therefore, to cut these expenses of circulation down to a mini¬
mum, just as his expenses for constant capital. Hence, indus¬
trial capital does not maintain the same attitude to its
commercial wage-labourers as it does to its productive wage-
labourers. The more productive wage-labourers it employs under
otherwise equal circumstances, the greater the output, and the
greater the surplus-value, or profit. Conversely, however, the
larger the scale of production, the greater the quantity of value
and surplus-value to be realised, the greater the produced
commodity-capital, the greater are the absolute, if not relative,
office costs, giving rise to a kind of division of labour. To what
extent profit is the precondition for these outlays, is seen, among
other things, from the fact that with the increase of commercial
salaries, a part of them is frequently paid by a share in the profit.
It is in the nature of things that labour consisting merely of
intermediate operations connected partly with calculating values,

300

MERCHANT’S CAPITAL

partly with realising them, and partly with reconverting the
realised money into means of production, is a labour whose
magnitude therefore depends on the quantity of the produced
values that have to be realised, and does not act as the cause,
like directly productive labour, but rather as an effect, of the
respective magnitudes and masses of these values. The same
applies to the other costs of circulation. To. do much measuring,
weighing, packing, and transporting, much must be on hand. The
amount of packing, transporting, etc., depends on the quantity of
commodities which are the objects of this activity, not vice versa.

The commercial worker produces no surplus-value directly.
But the price of his labour is determined by the value of his
labour-power, hence by its costs of production, while the appli¬
cation of this labour-power, its exertion, expenditure of energy,
and wear and tear, is as in the case of every other wage-labourer
by no means limited by its value. His wage, therefore, is not
necessarily proportionate to the mass of profit which he helps
the capitalist to realise. What he costs the capitalist and what
he brings in for him, are two different things. He creates no direct
surplus-value, but adds to the capitalist’s income by helping
him to reduce the cost of realising surplus-value, inasmuch as
he performs partly unpaid labour. The commercial worker, in
the strict sense of the term, belongs to the better-paid class of
wage-workers— to those whose labour is classed as skilled and
stands above average labour. Yet the wage tends to fall, even in
relation to average labour, with the advance of the capitalist
mode of production. This is due partly to the division of labour
in the office, implying a one-sided development of the labour
capacity, the cost of which does not fall entirely on the capital¬
ist, since the labourer’s skill develops by itself through the
exercise of his function, and all the more rapidly as division of
labour makes it more one-sided. Secondly, because the necessary
training, knowledge of commercial practices, languages, etc.,
is more and more rapidly, easily, universally and cheaply re¬
produced with the progress of science and public education the
more the capitalist mode of production directs teaching methods,
etc., towards practical purposes. The universality of public edu¬
cation enables capitalists to recruit such labourers from classes
that formerly had no access to such trades and were accustomed
to a lower standard of living. Moreover, this increases supply,
and hence competition. With few exceptions, the labour-power
of these people is therefore devaluated with the progress of capi¬
talist production. Their wage falls, while their labour capacity

COMMERCIAL PROFIT

301

increases. The capitalist increases the number of these labourers
whenever he has more value and profits to realise. The increase
of this labour is always a result, never a cause of more surplus-
value. **•

There is duplication, therefore. On the one hand, the functions
as commodity-capital and money-capital (hence further designat¬
ed as merchant’s capital) are general definite forms assumed by
industrial capital. On the other hand, specific capitals, and
therefore specific groups of capitalists, are exclusively devoted
to these functions; and these functions thus develop into specific
spheres of self-expansion of capital.

In the case of mercantile capital, the commercial functions and
circulation costs are found only in individualised form. That
side of industrial capital which is devoted to circulation, con¬
tinuously exists not only in the shape of commodity-capital and
money-capital, but also in the office alongside the workshop.
But it becomes independent in the case of mercantile capital.
In the latter’s case, the office is its only workshop. The portion
of capital employed in the form of circulation costs appears
much larger in the case of the big merchant than in that of the
industrialist, because besides their own offices connected with
every industrial workshop, that part of capital which would have
to be so applied by the entire class of industrial capitalists is
concentrated in the hands of a few merchants, who in carrying
out the functions of circulation also provide for the growing
expenses incidental to their continuation.

To industrial capital the costs of circulation appear as unpro¬
ductive expenses, and so they are. To the merchant they appear
as a source of his profit, proportional, given the general rate of
profit, to their size. The outlay to be made for these circulation
costs is, therefore, a productive investment for mercantile capital.
And for this reason, the commercial labour which it buys is
likewise immediately productive for it.

Ma How well this forecast of the fate of the commercial proletariat, written
in 1865, has stood the test of time can be corroborated by hundreds of German
clerks, who are trained in all commercial operations and acquainted with
three or four languages, and offer their services in vain in London City at
25 shillings per week, which is far below the wages of a good machine. A
blank of two pages in the manuscript indicates that this point was to have
been treated at greater length. For the rost, we refer the reader to Book II
(Kap. VI, S. 105-13) (“The Costs of Circulation”) [JSnglish edition: Vol.
II, Ch. VI, pp. 129-36.— Ed. ], where various matters belonging under this
head have already been discussed. — F.E.

CHAPTER XVIII

THE TURNOVER OF MERCHANT’S CAPITAL.

PRICES

The turnover of industrial capital is a combination of its
period of production and time of circulation, and therefore em¬
braces the entire process of production. The turnover of mer¬
chant’s capital, on the other hand, being in reality nothing but
an alienated movement of commodity-capital, represents only the
first phase in the metamorphosis of a commodity, C — M, as the
refluent movement of a specific capital; M— C, C— M, is, from
the mercantile point of view, the turnover of merchant’s capital.
The merchant buys, converting his money into commodities,
then sells, converting the latter back into money, and so forth
in constant repetition. Within circulation, the metamorphosis
of industrial capital always presents itself in the form of

— M— C2; the money realised by the sale of the produced com¬
modity Cj is used to purchase new means of production, C2.
This amounts to a practical exchange of Cj for C2, and the same
money thus changes hands twice. Its movement mediates the
exchange of two different kinds of commodities* Ct and C2. But
in the case of the merchant, it is, conversely, the same commodity
which changes hands twice in M — C— M'. It merely promotes
the reflux of his money.

If, for example, a certain merchant’s capital is £100, and for
these £100 the merchant buys commodities and sells them for
£110, then his capital of £100 has completed one turnover, and
the number of such turnovers per year depends on the number of
times this movement M— C— M' is repeated.

We here leave entirely out of consideration the costs which
may be concealed in the difference between the purchase price
and the selling price, since these do not alter in any way the form,
which we are now analysing.

THE TURNOVER OF MERCHANT’S CAPITAL

303

The number of turnovers of a given merchant’s capital, there¬
fore, is analogous in this case to the repeated cycles of money as
a mere medium of circulation. Just as the same thaler buys ten
times its value in commodities in making ten cycles, so the same
money-capital of the merchant, when turned over ten times,
buys ten times its value in commodities, or realises a total
commodity-capital of ten times its value; a merchant’s capital of
100, for instance, a ten-fold value = 1,000. But there is this differ¬
ence: In the cycle of money as a medium of circulation it is the
same piece of money that passes through different hands, thus
repeatedly performing the same function and hence making up
for the mass of the circulating pieces of money by its velocity.
But in the merchant’s case it is the same money capital, the same
money-value, regardless of what pieces of money it may be
composed, which repeatedly buys and sells commodity-capital to
the amount of its value and which therefore returns to the same
hands, the same point of departure as M + AM, i.e., value plus
surplus-value. This characterises its turnover as a capital turn¬
over. It always withdraws more money from circulation than it
throws in. It is self-evident, at any rate, that an accelerated
turnover of merchant’s capital (given a developed credit system,
the function of money as a means of payment predominates)
implies a more rapid circulation of the same quantity of
money.

A repeated turnover of commercial capital, however, never
connotes more than repeated buying and selling; while a repeat¬
ed turnover of industrial capital connotes the periodicity and
renovation of the entire reproduction process (which includes the
process of consumption). For merchant’s capital this appears
merely as an external condition. Industrial capital must contin¬
ually bring commodities to the market and withdraw them
from it, in order that rapid turnover of merchant’s capital may
remain possible. If the process of reproduction is slow, then so
is the turnover of merchant’s capital. True, merchant’s capital
promotes the turnover of productive capital, but only in so far
as it shortens its time of circulation. It has no direct influence
on the time of production, which is also a barrier to the period
of turnover of industrial capital. This is the first barrier for the
turnover of merchant’s capital. Secondly, aside from the barrier
formed by reproductive consumption, the turnover of merchant’s
capital is ultimately limited by the velocity and volume of the
total individual consumption, since all the commodity-capital
which is part of the consumption-fund depends on it.

304

MERCHANT’S CAPITAL

However (aside from the turnovers in the world of commerce,
in which one merchant always sells the same commodity to
another, and this sort of circulation may appear highly prosperous
in times of speculation), the merchant’s capital, in the first
place, curtails phase C— M for productive capital. Secondly,
under the modern credit system it disposes of a large portion of
th£ total social money-capital, so that it can repeat its purchases
even before it has definitely sold what has previously been pur¬
chased. And it is immaterial in this case, whether our merchant
sells directly to the ultimate consumer, or there are a dozen other
intermediate merchants between them. Owing to the immense
elasticity of the reproduction process, which may always be
pushed beyond any given bounds, it does not encounter any
obstacle in production itself, or at best a very elastic one. Aside
from the separation of C— M and M— C, which follows from the
nature of the commodities, a fictitious demand is then created.
In spite of its independent status, the movement of merchant’s
capital is never more than the movement of industrial capital
within the sphere of circulation. But by virtue of its independent
status it moves, within certain limits, independently of the
bounds of the reproduction process and thereby even drives the
latter beyond its bounds. This internal dependence and external
independence push merchant’s capital to a point where the
internal connection is violently restored through a crisis.

Hence the phenomenon that crises do not come to the surface,
do not break out, in the retail business first, which deals with
direct consumption, but in the spheres of wholesale trade, and
of banking, which places the money-capital of society at the
disposal of the former.

The manufacturer may actually sell to the exporter, and the
exporter, in his turn, to his foreign customer; the importer may
sell his raw materials to the manufacturer, and the latter may
sell his products to the wholesale merchant, etc. But at some
particular imperceptible point the goods lie unsold, or else,
again, all producers and middlemen may gradually become
overstocked. Consumption is then generally at its highest, either
because one industrial capitalist sets a succession of others in
motion; or because the labourers employed by them are fully
employed and have more to spend than usual. The capitalists’
expenditures increase together with their growing income. Be¬
sides, as we have seen (Book II, Part III*), continuous circulation

English edition: Vol. II, pp. 422-25, 429-33. — Ed.

THE TURNOVER OF MERCHANT’S CAPITAL

305

takes place between constant capital and constant capital (even
regardless of accelerated accumulation). It is at first independent
of individual consumption because it never enters the latter.
But this consumption definitely limits it nevertheless, since
constant capital is never produced for its own sake but solely
because more of it is needed in spheres of production whose
products go into individual consumption. However, this may go
on undisturbed for some time, stimulated by prospective demand,
and in such branches, therefore, the business of merchants and
industrialists goes briskly forth. The crisis occurs when the returns
of merchants who sell in distant markets (or whose supplies have
also accumulated on the home market) become so slow and meagre
that the banks press for payment, or promissory notes for pur¬
chased commodities become due before the latter have been resold.
Then forced sales take place, sales in order to meet payments.
Then comes the crash, which brings the illusory prosperity to
an abrupt end.

But the superficiality and meaninglessness of the turnover
of merchant’s capital are still greater, because the turnover of
one and the same merchant's capital may simultaneously or
successively promote the turnovers of several productive capi¬
tals.

The turnover of merchant’s capital does not just promote the
turnovers of several industrial capitals, it can also expedite the
opposite phases of the metamorphosis of commodity-capital.
For instance, the merchant buys linen from the manufacturer and
sells it to the bleacher. In this case, therefore the turnover of
the same merchant’s capital — in fact, the same C — M, a realisa¬
tion of the linen — represents two opposite phases for two differ¬
ent industrial capitals. Inasmuch as the merchant sells for
productive consumption, his C — M is always M — C for one
industrial capitalist, and his M — C always C — M for another
industrial capitalist.

If we leave out K, the circulation costs, as we do in this chap¬
ter, if, in other words, we leave aside that portion of capital which
the merchant advances along with the money required to purchase
commodities, it follows that we also omit AK, the additional
profit made on this additional capital. This is thus the strictly
logical and mathematically correct mode of analysis if we
want to see how profit and turnover of merchant’s capital affect
prices.

If the price of production of 1 lb. of sugar were £1, the mer¬
chant could buy 100 lbs. of sugar with £100. If he buys and sells

306

MERCHANT’S CAPITAL

this quantity in the course of the year, and if the average annual
rate of profit is 15%, he would add £15 to the £100, and 3s.
to £1, the price of production of 1 lb. of sugar. That is, he would
sell 1 lb. of sugar at £1. 3s. But if the price of production of 1 lb.
of sugar should fall to Is., the merchant could buy 2,000 lbs.
of sugar with £100, and sell the sugar at Is. l4/6d. per lb. The
annual profit on capital invested in the sugar business would
still be £15 on each £100. But the merchant has to sell 100 lbs.
in the first case, and 2,000 lbs. in the second. The high or low
level of the price of production has nothing to do with the rate
of profit. But it would greatly and decisively affect that aliquot
part of the selling price of each lb. of sugar, which resolves itself
in mercantile profit, i.e., the addition to the price which the
merchant makes on a certain quantity of commodities or products.
If the price of production of a commodity is small, so, too, the
amount the merchant advances in its purchase price, i.e., for
a certain quantity of it. Hence, with a given rate of profit, the
amount of profit he makes on this quantity of cheap commodities
is small as well. Or, what amounts to the same, he can then
buy with a certain amount of capital, say, ^100, a larger quantity
of these cheap commodities, and the total profit of 15, which
he makes per 100, breaks up into small fractions over each indi¬
vidual piece or portion belonging to this mass of commodities.
If the opposite takes place, then the reverse is true. This depends
entirely on the greater or smaller productivity of the industrial
capital in whose products he trades. If we except the cases in
which the merchant is a monopolist and simultaneously monopo¬
lises production, as did the Dutch East India Company in its
day, nothing can be more ridiculous than the current idea that
it depends on the merchant whether he sells many commodities
at a small profit or few commodities at a large profit on each
individual piece of the commodities. The two limits of his selling
price are: on the one hand, the price of production of the commod¬
ities, over which he has no control; on the other hand, the
average rate of profit, over which he has just as little control.
The only thing up to him to decide is whether he wants to deal
in dear or in cheap commodities, and even here the size of his
available capital and other circumstances also have their effect.
Therefore, it depends wholly on the degree of development of
the capitalist mode of production, not on the merchant's good¬
will, what course he shall follow. A purely commercial company
like the old Dutch East India Company, which had a monopoly
of production, could fancy that it could continue a method

THE TURNOVER OF MERCHANT’S CAPITAL

307

adapted at best to the beginnings of capitalist production, under
entirely changed conditions.40

The following circumstances, among others, help to maintain
that popular prejudice, which, like all false conceptions of profit,
etc., arises from the observation of pure commerce and merchants’
prejudice :

First: phenomena of competition, which, however, apply
merely to the distribution of mercantile profit among individ¬
ual merchants, the shareholders of the total merchant’s capital;
if one, for example, sells cheaper, in order to drive his competitors
off the field.

Secondly: an economist of the calibre of Professor Roscher may
still imagine in Leipzig that it was “common sense and humani¬
tarian”* grounds, which produced the change in selling prices, and
that it was not a result of a revolutionised mode of production.

Thirdly: if production prices fall due to greater productivity
of labour, and selling prices fall for the same reason, the demand,
and with it the market-prices, often rise even faster than the
supply, so that selling prices yield more than the average
profit.

Fourthly: a merchant may reduce his selling price (which is
never more than a reduction of the usual profit that he adds to
the price) so as to turn over a larger capital more rapidly. All
these are matters that only concern competition between the
merchants themselves.

We have already shown in Book I** that high or low commod¬
ity-prices do not determine either the mass of surplus-value
produced by a given capital, or the rate of surplus-value; although
the price of a commodity, and with it the share of surplus-
value in this price, are greater or smaller, depending on the rela-

<0 “Profit, on the general principle, is always the same, whatever be
price; keeping its place like an incumbent body on the swelling or sinking
tide. As, therefore, prices rise, a tradesman raises price; as prices fall, a trades¬
man lowers price.” (Corbet, An Inquiry into the Causes, etc., of the Wealth
of Individuals, London, 1841, p. 20.) Here, as in the text generally, it is
only a matter of ordinary commerce, not of speculation. The analysis of
speculation, as well as everything else pertaining to the division of mercan¬
tile capital, falls outside the held of our inquiry. “The profit of trade is a
value added to capital which is independent of price, the second” (specula¬
tion) “is founded on the variation in the value of capital or in price itself"
(1. c„ p. 128).

* Roscher, Die Grundlagen der Nationalokonomie, 3. AuOage, 1858,
S. 192. — Ed.

** English edition: Vol. I, pp. 519-20.— Ed.

308

MERCHANT'S CAPITAL

tive quantity of commodities produced by a given quantity of
labour. The prices of every specified quantity of a commodity
are, so far as they correspond to the values, determined by the
total quantity of labour incorporated in this commodity. If
little labour is incorporated in much commodity, the unit price
of the commodity is low and the surplus-value in it is small.
How this labour incorporated in a commodity breaks up into
paid and unpaid labour and what portion of its price, therefore,
represents surplus-value, has nothing to do with this total quan¬
tity of labour, nor, consequently, with the price of the commodity.
But the rate of surplus-value does not depend on the absolute
magnitude of the surplus-value contained in the unit price of
the commodity. It depends on its relative magnitude, its pro¬
portion to the wages contained in the same commodity. The rate
of surplus-value may therefore be large, while the absolute mag¬
nitude of surplus-value in each unit of the commodity is small.
This absolute magnitude of surplus-value in each piece of the
commodity depends primarily on the productivity of labour, and
only secondarily on its division into paid and unpaid labour.

Now, in the case of the commercial selling price, the price of
production is a given external precondition.

The high commercial commodity-prices in former times were
due 1) to the high prices of production, i.e., the unproductiveness
of labour; 2) to the absence of a general rate of profit, with mer¬
chant’s capital absorbing a much larger quota of surplus-value
than would have fallen to its share if capitals enjoyed greater
general mobility. The ending of this situation, in both its aspects,
is therefore the result of the development of the capitalist mode
of production.

The turnovers of merchant’s capital vary in duration, their
annual number consequently being greater or smaller, in different
branches of commerce. Within the same branch the turnover
is more or less rapid in the different phases of the economic cycle.
Yet there is an average number of turnovers,* determined by
experience.

We have already seen that the turnover of merchant’s capital
differs from that of industrial capital. This is in the nature of
things. One single phase in the turnover of industrial capital
appears as a complete turnover of an independently constituted
merchant’s capital, or yet of its part. It also stands in a different
relation to profit and price determination.

In the case of industrial capital, its turnover expresses, on the
one hand, the periodicity of reproduction, and, therefore, the

THE TURNOVER OF MERCHANT’S CAPITAL

309

mass of commodities thrown on the market in a certain period
depends on it. On the other hand, its time of circulation creates
a barrier, an extensible one, and exerts more or less of a restraint
on the creation of value and surplus-value, because it affects the
volume of the production process. The turnover, therefore, acts
as a determining element on the mass of annually produced
surplus-value, and hence on the formation of the general rate of
profit, but it acts as a limiting, rather than positive, element.
For merchant’s capital, on the contrary, the average rate of profit
is a given magnitude. The merchant’s capital does not directly
participate in creating profit or surplus-value, and joins in shap¬
ing the general rate of profit only in so far as it draws a divi¬
dend proportionate to its share in the total capital, out of the
mass of profit produced by industrial capital.

The greater the number of turnovers of an industrial capital
under conditions described in Book II, Part II, the greater the
mass of profit it creates. True, through the formation of a general
rate of profit, the total profit is distributed among the different
capitals not in proportion to their actual part in its production,
but in proportion to the aliquot part they make up of the total
capital, i.e., in proportion to their magnitude. But this does
not alter the essence of the matter. The greater the number of
turnovers of the total industrial capital, the greater the mass
of profits, the mass of annually produced surplus-value, and, there¬
fore, other circumstances remaining unchanged, the rate of profit.
It is different with merchant’s capital. The rate of profit is a given
magnitude with respect to it, determined on the one hand by the
mass of profit produced by industrial capital, and on the other
by the relative magnitude of the total merchant’s capital, by its
quantitative relation to the sum of capital advanced in the proc¬
esses of production and circulation. The number of its turnovers
does, indeed, decisively affect its relation to the total capital, or
the relative magnitude of merchant’s capital required for the cir¬
culation, for it is evident that the absolute magnitude of the re¬
quired merchant’s capital and the velocity of its turnovers stand
in inverse proportion. But, all other conditions remaining equal,
the relative magnitude of merchant's capital, or the part it makes
up of the total capital, is determined by its absolute magnitude.
If the total capital is 10,000, and the merchant’s capital Vio°f
that sum, it is = l,000; if the total capital is 1,000, then V10 of
it=100. The absolute magnitude of merchant’s capital varies,
depending on the magnitude of the total capital, although its
relative magnitude remains the same. But here we assume that

I I 2494

310

MERCHANT'S CAPITAL

its relative magnitude, say, of the total capital, is given. This
relative magnitude, however, is again determined by the turn¬
over. If it is turned over ’rapidly, its absolute magnitude, for
example, will =£1,000 in the first case, = 100 in the second, and
hence its relative magnitude=1/,0. With a slower turnover its
absolute magnitude is, say, =2,000 in the first case, and =200 in
the second. Its relative magnitude will their have increased from
Vio to Vs °f thfl total capital. Circumstances which reduce the aver¬
age turnover of merchant’s capital, like the development of means
of transportation, for instance, reduce pro tanto the absolute mag¬
nitude of merchant’s capital, and thereby increase the general
rate of profit. If the opposite takes place, then the reverse is true.
A developed capitalist mode of production, compared with earlier
conditions, exerts a two-fold influence on merchant’s capital.
On the one hand, the same quantity of commodities is turned over
with a smaller mass of actually functioning merchant’s capital;
owing to the more rapid turnover of merchant’s capital, and the
more rapid reproduction process, on which this depends, the re¬
lation of merchant’s capital to industrial capital diminishes. On
the other hand, with the development of the capitalist mode of
production all production becomes the production of commodi¬
ties, which places all products into the hands of agents of
circulation. It is to be added that under the previous mode of
production, which produced on a small scale, a very large portion
of the producers sold their goods directly to the consumers, or
worked on their personal orders, save for the mass of products
consumed directly, in kind, by the producer himself, and the
mass of services performed in kind. While, therefore, under
former modes of production commercial capital was greater in
relation to the commodity-capital which it turned over, it
was:

1) absolutely smaller, because a disproportionately smaller
part of the total product was produced as commodities, and passed
as commodity-capital into circulation, falling into the hands
of merchants. It was smaller, because the commodity-capital was
smaller. But at the same time it was proportionately larger, not
only because its turnover was slower and not only in relation
to the mass of commodities turned over by it. It was larger also
because the price of this mass of commodities, and hence the mer¬
chant’s capital to be advanced for it, were greater than under
capitalist production on account of a lower productivity of
labour, so that the same value was incorporated in a smaller mass
of commodities.

THE TURNOVER OF MERCHANT'S CAPITAL

311

2) It is not only that a larger mass of commodities is produced
on the basis of capitalist production (taking into account also
the reduced value of this mass of commodities), but the same
mass of products, for instance, of corn, also forms a greater com¬
modity mass, i.e., more and more of it becomes an object of com¬
merce. As a consequence, there is an increase not only of the mass
of merchant’s capital, but of all capital applied in circulation,
such as in marine shipping, railways, telegraph, etc.

3) However, and this is an aspect which belongs to the dis¬
cussion of “competition among capitals”: idle or only half¬
functioning merchant’s capital grows with the progress of the
capitalist mode of production, with the ease of entering retail
trade, with speculation, and the redundance of released capital.

But, assuming the relative magnitude of merchant’s capital
to total capital to be given, the difference of turnovers in the
various branches of commerce does not affect either the magnitude
of the total profit falling to the share of merchant’s capital, or the
general rate of profit. The merchant’s profit is not determined
by the mass of commodity-capital turned over by him, but by
the dimensions of the money-capital advanced by him to promote
this turnover. If the general annual rate of profit is 15%, and
the merchant advances £100, which he turns over once a year, he
will sell his commodities at 115. If his capital turns over five times
a year, he will sell a commodity-capital he bought at 100 at 103
five times a year, hence in a year a commodity-capital of 500 at
515. This gives the same annual profit of 15 on his advanced
capital of 100. If this were not so, merchant's capital would yield a
much higher profit, proportionate to the number of its turnovers,
than industrial capital, which would be in conflict with the law
of the general rate of profit.

Hence, the number of turnovers of merchant’s capital in the
various branches of commerce has a direct influence on the
mercantile prices of commodities. The amount added to the
mercantile price, the aliquot part of mercantile profit of a given
capital, which falls upon the price of production of a commodity,
is in inverse proportion to the number of turnovers, or the
velocity of turnover, of merchants’ capitals in the various lines
of commerce. If a certain merchant’s capital is turned over five
times a year, it will add to a commodity-capital of equal value
but 1/5 of what another merchant’s capital, which turns over just
once a year, adds to a commodity-capital of equal value.

The modification of selling prices by the average period of
turnover of capitals in different branches of commerce amounts

312

MERCHANT’S CAPITAL

to this: The same mass of profits, determined for any given
magnitude of merchant’s capital by the general annual rate of
profit, hence determined independently of the specific character
of the commercial operations of this capital, is differently distrib¬
uted — proportionately to the rate of turnover — over masses of
commodities of equal value, so that, for instance, if a merchant’s

capital is turned over five times a year, — =^-=3%, and if once a

year, 15%, is added to the price of the commodities.

The same percentage of commercial profit in different branches
of commerce, therefore, increases the selling prices of commodities
by quite different percentages of their values, all depending on
their periods of turnover.

On the other hand, in the case of industrial capital, the period
of turnover does not in any way affect the magnitude of the value
of individual commodities produced, although it does affect the
mass of values and surplus-values produced in a given time by
a given capital, because it affects the mass of exploited labour.
This is concealed, to be sure, and seems to be otherwise as soon
as one turns to prices of production. But this is due solely to the
fact that, according to previously analysed laws, the prices of
production of various commodities deviate from their values.
If we look upon the process of production as a whole, and upon
the mass of commodities produced by the total industrial capital,
we shall at once find the general law vindicated.

While, therefore, a closer inspection of the influence of the
period of turnover on the formation of values by industrial capi¬
tal leads us back to the general law and to the basis of political
economy, that the values of commodities are determined by the
labour-time contained in them, the influence of the turnovers
of merchant’s capital on mercantile prices reveals phenomena
which, without benefit of a very far-reaching analysis of the con¬
necting links, seem to point to a purely arbitrary determination
of prices; namely, that they are fixed by a capital simply bent
upon pocketing a certain quantity of profit in a year. Due partic¬
ularly to this influence of turnovers, it appears that within
certain limits the process of circulation as such determines com¬
modity-prices independently of the process of production. All
superficial and false conceptions of the process of reproduction as a
whole are derived from examinations of merchant’s capital and
from the conceptions which its peculiar movements call forth
in the minds of circulation agents.

If, as the reader will have realised to his great dismay, the

THE TURNOVER OP MERCHANT'S CAPITAL

313

analysis of the actual intrinsic relations of the capitalist process
of production is a very complicated matter and very extensive;
if it is a work of science to resolve the visible, merely external
movement into the true intrinsic movement, it is self-evident that
conceptions which arise about the laws of production in the minds
of agents of capitalist production and circulation will diverge
drastically from these real laws and will merely be the conscious
expression of the visible movements. The conceptions of the mer¬
chant, stockbroker, and banker, are necessarily quite distorted.
Those of the manufacturers are vitiated by the acts of circula¬
tion to which their capital is subject, and by the levelling of the
general rate of proGt.41 Competition likewise assumes a completely
distorted role in their minds. If the limits of value and surplus-
value are given, it is easy to grasp how competition of capitals
transforms values into prices of production and further into mer¬
cantile 'prices, and surplus-value into average proGt. But without
these limits, it is absolutely unintelligible why competition
should reduce the general rate of proGt to one level instead of
another, e.g., make it 15% instead of 1,500%. Competition can
at best only reduce the general rate of proGt to one level. But it con¬
tains no element by which it could determine this level itself.

From the standpoint of merchant’s capital, therefore, it is
the turnover which appears to determine prices. On the other
hand, while the rate of turnover of industrial capital, in so far
as it enables a certain capital to exploit more or less labour, exerts
a determining and limiting influence on the mass of proGt, and
thus on the general rate of proGt, this rate of proGt obtains for
merchant’s capital as an external fact, its internal connection
with the production of surplus-value being entirely obliterated.
If, under otherwise equal circumstances and particularly the same
organic composition, the same industrial capital is turned over
four times a year instead of twice, it produces twice as much sur¬
plus-value and, consequently, proGt. And this is apparent as soon,
and as long, as this capital has a monopoly on an improved method
of production, which makes this accelerated turnover possible.
Conversely, differences in the periods of turnover in different
branches of commerce manifest themselves in the fact that proGt

41 This is a very naive, but also a very correct remark: “Surely the fact
that one and the same commodity may be had from different sellers at con¬
siderably different prices is frequently due to mistakes of calculation.”
(Feller and Odermann, Das Game der kaufmannischcn Arithmetik, 7th ed.,
1859, S. 451.) This shows how purely theoretical, that is, abstract, becomes
the determination of prices.

314

MERCHANT’S CAPITAL

made on the turnover of a given commodity-capital is in inverse
proportion to the number of times the money-capital turns over
this commodity-capital. Small profits and quick returns appear
to the shopkeeper to be the principle which he follows out of
sheer principle.

For the rest, it is self-evident that regardless of alternating,
mutually compensating, speedier and slower turnovers, this law
of turnover of merchant's capital holds good in each branch of
commerce only for the average turnovers made by the entire mer¬
chant ’s capital invested in each particular branch. The capital
of A, who deals in the same branch as B, may make more or less
than the average number of turnovers. In this case the others
make less or more. This does not alter the turnover of the total
mass of merchant’s capital invested in this line. But it is of de¬
cisive moment for the individual merchant or shopkeeper. In this
caSe he makes an extra profit, just as industrial capitalists make
extra profits if they produce under better than average conditions.
If competition compels him, he can sell cheaper than his
competitors without lowering his profit below the average. If the
conditions which would enable him to turn over his capital
more rapidly, are themselves for sale, such as a favourable shop
location, he can pay extra rent for it, i.e., convert a portion of
his surplus-profit into ground-rent.

CHAPTER XIX

MONEY- DEALING CAPITAL

The purely technical movements performed by money in the
circulation process of industrial, and, as we may now add, of
commercial capital (since it takes over a part of the circulation
movement of industrial capital as its own, peculiar movement),
if individualised as a function of some particular capital per¬
forming just these, and only these, operations as its specific oper¬
ations, convert this capital into money-dealing capital. A portion
of industrial capital, and, more precisely, also of commercial cap¬
ital, not only obtains all the time in the form of money, as money-
capital in general, but as money-capital engaged precisely in
these technical functions. A definite part of the total capital
dissociates itself from the rest and stands apart in the form of
money-capital, whose capitalist function consists exclusively in
performing these operations for the entire class of industrial and
commercial capitalists. As in the case of commercial capital,
a portion of industrial capital engaged in the circulation process
in the form of money-capital separates from the rest and per¬
forms these operations of the reproduction process for all the
other capital. The movements of this money-capital are, therefore,
once more merely movements of an individualised part of in¬
dustrial capital engaged in the reproduction process.

It is only when, and in so far as, capital is newly invested —
which also applies to accumulation — that capital in money-form
appears as the starting-point and the end result of the movement.
But for all capitals already engaged in the process, these first
and last points appear merely as points of transit. Since, as
already seen in the case of simple commodity-circulation, from
the moment of leaving the sphere of production to the moment

316

MERCHANT’S CAPITAL

of its re-entry industrial capital undergoes the metamorphosis
C' — M — C, M in fact represents the end result of one phase of
the metamorphosis, just to become the starting-point of the
reverse phase, which supplements it. And although the C — M
of industrial capital is always M — C — M for merchant’s capital,
the actual process for the latter is continually also C— M — C once
it has begun to function. But it performs the acts C — M and
M — C simultaneously. This is to say that there is not just one
capital in the stage C — M while another is in the stage M — C, but
that the same capital buys continually and sells continually at
one and the same time because of the continuity of the production
process. It is to be found always in both stages at one and the same
time. While one of its parts turns into money, later to be recon¬
verted into commodities, another turns simultaneously into
commodities, to be reconverted into money.

It all depends on the form of the commodity exchange whether
the money serves here as a means of circulation or of payment.
In both cases the capitalist has to pay out money constantly to
many persons, and to receive money continually from many per¬
sons. This purely technical operation of disbursing and receiving
money is in itself labour which, as long as the money serves as
a means of payment, necessitates drawing up payment balances
and acts of balancing accounts. This labour is a cost of circulation,
i.e., not labour creating value. It is shortened in being carried
out by a special section of agents, or capitalists, for the rest of the
capitalist class.

A definite portion of the capital must be on hand constantly
as a hoard, as potential money-capital — a reserve of means of
purchase, a reserve of means of payment, and idle capital in
the form of money waiting to be put to work. Another portion
streams back continually in this form. Aside from collecting,
paying, and book-keeping, this entails safekeeping the hoard,
which is an operation all in itself. It is, indeed, a continuous
conversion of the hoard into means of circulation and means of
payment, and its restoration by means of money secured through
sales and from payments due. This constant movement of the part
of capital existing as money, dissociated from the function of
capital itself, this purely technical function, causes its own
labour and expense, classified as costs of circulation.

The division of labour brings it about that these technical
operations, dependent upon the functions of capital, should be
performed for the entire capitalist class as much as possible by a
special section of agents or capitalists as their exclusive function —

MONEY-DEALING CAPITAL

317

or that these operations should be concentrated in their hands.
We have here, as in merchant's capital, division of labour in
a two-fold sense. It becomes a specialised business, and because
performed as a specialised business for the money-mechanism
of the whole class, it is concentrated and conducted on a large
scale. A further division of labour takes place within it, both
through division into various independent branches, and through
segmentation of work within these branches (large offices,
numerous book-keepers and cashiers, and far-reaching division of
labour). Paying and receiving money, settling accounts, keeping
current accounts, storing money, etc. — all this, dissociated from
the acts necessitating these technical operations, makes money¬
dealing capital of the capital advanced for these functions.

The various operations, whose individualisation into specific
businesses gives rise to the money trade, spring from the different
purposes of money itself and from its functions, which capital
in its money-form must therefore likewise carry out.

I have pointed out earlier that finance developed originally
from the exchange of products between different communities.41

Trading in money, commerce in the money-commodity, first
developed therefore out of international commerce. Ever since
different national coins have existed merchants buying in foreign
countries have had to exchange their national coins for local
coins, and vice versa, or to exchange different coins for uncoined
pure silver or gold — the world-money. Hence the exchange busi¬
ness which is to be regarded as one of the natural foundations
of modern finance.43 Out of it developed banks of exchange, Ln

4i Zur Krillk der politischeri Ockonomie, S. 27.

41 “The great differences among coins as concerns their grain and coin¬
age by many princes and towns that were privileged to coin money, necessi¬
tated the creation of business establishments to enable merchants to use
local money wherever compensation for the different coins was required.
To be able to make cash payments, merchants who travelled to a foreign
market provided themselves with uncoined pure silver, or gold. In the same
way they exchanged money received in local markets for uncoined silver
or gold when returning home. The business of exchanging money, the exchange
of uncoined precious metals for local coins, and vice versa, thus became
a wide-spread and paying business.” (Hullmann, Stadteweten det Mittelal-
ters. Bonn, 1826-29, I, S. 437-38.) “Banks of exchange do not owe their name
to the fact that they issue bills of exchange ... but to the fact that they used
to exchange coins. Long before the establishment of the Amsterdam Bank
of Exchange in 1609, there existed in the Dutch merchant towns money¬
changers and exchange houses, even exchange banks.... The business of
these money-changers consisted in exchanging the numerous varieties of

318

MERCHANT’S CAPITAL

which silver (or gold) serves as world-money — now called bank
money or commercial money — as distinct from currency.
Exchange transactions, in the sense of mere notes of payment to
travellers from a money-changer in one country to a changer in
another country, developed back in Rome and Greece out of the
actual money-changing.

Trading in gold and silver as commodities (raw materials for
the making of luxury articles) is the natural basis of the bullion
trade, or the trade which acts as a medium for the functions of
money as universal money. These functions, as previously
explained (Buch I, Kap. Ill, 3, c*), are two-fold: currency movement
back and forth between the various national spheres of circula¬
tion in order to balance international payments and in connection
with the migrations of capital in quest of interest; simulta¬
neously, flow of precious metals from their sources of production
via the world-market and their distribution among the various
national spheres of circulation. Goldsmiths acted as bankers still
during the greater part of the 17th century in England. We shall
completely disregard the way in which the balancing of inter¬
national accounts developed further in the bill jobbing, etc.,
and everything referring to transactions in valuable papers; in
short, we shall leave out of consideration all special forms of the
credit system, which do not as yet concern us here.

National money discards its local character in the capacity
of universal money; one national currency is expressed in another,
and thus all of them are finally reduced to their content of gold
or silver, while the latter, being the two commodities circulating
as world-money, are simultaneously reduced to their reciprocal
value-ratio, which changes continually. It is this intermediate
operation which the money trader makes his special occupation.

coin brought into the country by foreign traders for the currency of the
realm. Gradually their circle of activity extended.... They became the bank¬
ers and cashiers of their times. But the government of Amsterdam viewed
as dangerous the combination of cashier and exchange businesses, and to
meet this danger it was resolved to establish a large chartered institution
able to perform both the cashier and exchange operations. This institution
was the famous Amsterdam Bank of Exchange of 1609. In like manner, the
exchange banks of Venice, Genoa, Stockholm, Hamburg, owe their origin
to the continual necessity of changing money. Of all these, the Hamburg
Exchange is the only one today still doing business, because the need for
such an institution is still felt in that merchants' town, which has no Mint of
its own, etc.” (S. Vissering, Handboek van Praktische Staathuishoudkunde,
Amsterdam. 1860-61, I, 247-48.)

* English edition: Ch. Ill, 3, c. — Ed.

MONEY-DEALING CAPITAL

319

Money-changing and the bullion trade are thus the original forms
of the money trade, and spring from the two-fold functions of
money — as national money and world-money.

The capitalist process of production, just as commerce in
general, even under pre-capitalist methods, imply:

First, the accumulation of money as a hoard, i.e., here as that
part of capital which must always be on hand in the form of
money as a reserve fund of means of payment and purchase. This
is the first form of a hoard, as it reappears under the capitalist
mode of production, and as it appears generally with the devel¬
opment of merchant’s capital, at least for the purposes of this
capital. Both remarks apply to national, as well as international,
circulation. The hoard is in continuous flux, pours ceaselessly
into circulation, and returns ceaselessly from it. The second
form of a hoard is that of idle, temporarily unemployed capital
in the shape of money, including newly accumulated and not
yet invested money-capital. The functions entailed by this for¬
mation of a hoard are primarily those of safekeeping, book¬
keeping, etc.

Secondly, however, this involves outlays of money for pur¬
chases, collecting money from sales, making and receiving pay¬
ments, balancing payments, etc. The money-dealer performs all
these services at first as a simple cashier of the merchants and
industrial capitalists.44

44 “The institution of cashier has probably nowhere preserved its origi¬
nal independent character so pure as in the Dutch merchant towns” (cf. on
the origin of the cashier business in Amsterdam, E. Lusac, Holland' i Rykdom,
Part HI). “Its functions coincide in part with those of the old Amsterdam
Bank of Exchange. The cashier receives from the merchants, who employ
his services, a certain amount of money, for which he opens a ‘credit^ for
them in his books. Later, they send him their claims, which he collects for
them and credits to their account. At the same time, he makes payments
on their drafts ( kassiers brlefes) and charges the amounts to their account.
He makes a small charge for these receipts and payments, which yields him
a remuneration for his labours only corresponding to the size of the turnover
accomplished between the two parties. If payments are to be balanced be¬
tween two merchants, who both deal with the same cashier, such payments
are settled very simply by mutual entries in the books, for the cashiers balance
their mutual claims from day to day. The cashier’s actual business thus
consists basically of this mediation in payments. Therefore, it excludes
industrial enterprises, speculation, and opening of unlimited credits; for it
must be the rule in this business that the cashier makes no payment over and
above the credit of any one keeping an account with him.” (Vissering, loc.
cit., p. 134.) Re the banking associations of Venice: “The requirements and
locality of Venice, where carrying bullion was less convenient than in other
places, induced the large merchants of that city to found banking associa-

320

MERCHANT'S CAPITAL

The money trade becomes fully developed, even in its first
stages, as soon as its ordinary functions are supplemented by
lending and borrowing and by credit. Of this more in the next
part, which deals with interest-bearing capital.

The bullion trade itself, the transfer of gold or silver from one
country to another, is merely the result of trading in commod¬
ities. It is determined by the rate of exchange which expresses
the standing of international payments and the interest rates in
the different markets. The bullion trader as such acts merely as
an intermediary of the results.

In discussing money and the way its movements and forms
develop out of simple commodity-circulation, we saw (Buch I,
Kap. Ill*) that the movements of the mass of money circulating
as means of purchase and payment depend on the metamorphosis
of commodities, on the volume and velocity of this metamorphosis,
which we now know to be but a phase in the entire process of re¬
production. As for securing the money materials — gold and sil¬
ver — from their sources of production, this resolves itself into
a direct exchange of commodities, an exchange of gold and silver
as commodities for other commodities. Hence, it is itself as much
a phase of the exchange of commodities as the securing of iron
or other metals. However, so far as the movement of precious
metals on the world-market is concerned (we here leave aside
movements expressing the transfer of capital by loans — a type
of transfer which also obtains in the shape of commodity-capital),
it is quite as much determined by the international exchange
of commodities as the movement of money as a national means
of purchase and payment is determined by the exchange of com¬
modities in the home market. The inflow and outflow of precious
metals from one national sphere of circulation to another, inas¬
much as this is caused merely by a depreciation of the national
currency, or by a double standard, are alien to money circulation
as such and merely represent corrections of deviations brought
about arbitrarily by state decrees. Finally, as concerns the for-

tions under due safeguards, supervision and management. Members of such
associations deposited certain sums, on which they drew drafts for their
creditors, whereupon the paid sum was deducted from the debtor's account
on the page of the book reserved for that purpose and added to the sum
credited in the same book to the creditor. This is tne earliest beginning of the
so-called giro banks. These associations are indeed old. But if attributed to
the 12th century, they are being confounded with the State Loan Institute
established in 1171.” (Hullmann, loe. cit., pp. 453-54.)

* English edition: Ch. III.— Ed.

MONEY-DEALING CAPITAL

321

mation of hoards which constitute reserve funds for means of pur¬
chase and payment, be it for home or foreign trade, and which
also merely represent a form of temporarily idle capital, they are
in both cases necessary precipitates of the circulation process.

If the entire circulation of money is in volume, form and move¬
ment purely a result of commodity-circulation, which, in its
turn, from the capitalist point of view, is only the circulation
process of capital (also embracing the exchange of capital for
revenue, and of revenue for revenue, so far as outlay of revenue
is effected through retail trade), it is self-evident that dealing
in money does not merely promote the circulation of money, a
mere result and phenomenon of commodity-circulation. This cir¬
culation of money itself, a phase in commodity-circulation, is
taken for granted in money-dealing. What the latter promotes is
merely the technical operations of money circulation which it
concentrates, shortens, and simplifies. Dealing in money does not
form the hoards. It provides the technical means by which the
formation of hoards may, so far as it is voluntary (hence, not
an expression of unemployed capital or of disturbances in the
reproduction process), be reduced to its economic minimum be¬
cause, if managed for the capitalist class as a whole, the reserve
funds of means of purchase and payment need not be as large as
they would have to be if each capitalist were to manage his own
The money-dealers do not buy the precious metals. They merely
handle their distribution as soon as the commodity trade has
bought them. They facilitate the settling of balances, inasmuch
as money serves as the means of payment, and reduce through
the artificial mechanism of these settlements the amount of money
required for this purpose. But they do not determine either the
connections, or the volume, of the mutual payments. The bills
of exchange and the cheques, for instance, which are exchanged
for one another in banks and clearing houses, represent quite
independent transactions and are the results of given operations,
and it is merely a question of a better technical settlement of
these results. So far as money circulates as a means of purchase,
the volume and number of purchases and sales have no connec¬
tion whatever with money-dealing. The latter can do no more
than shorten the technical operations that go with buying and
selling, and thus reduce the amount of cash money required to
turn over the commodities.

Money-dealing in its pure form, which we consider here, i e.,
set apart from the credit system, is thus concerned only with the
technique of a certain phase of commodity-circulation, namely,

322

MERCHANT'S CAPITAL

that of money circulation and the different functions of money
arising in its circulation.

This substantially distinguishes dealing in money from the
dealing in commodities, which promotes the metamorphosis of
commodities and their exchange, or even gives this process of
the commodity-capital the appearance of a process of a capital
set apart from industrial capital. While, therefore, commercial
capital has its own form of circulation, M — C— M, in which the
commodity changes bands twice and thus provides a reflux of
money, as distinct from C — M — C, in which money changes hande
twice and thus promotes commodity exchange, there is no such
special form in the case of money-dealing capital.

In so far as money-capital is advanced by a separate class of
capitalists in this technical promotion of money circulation —
a capital which on a reduced scale represents the additional capi¬
tal the merchants and industrial capitalists would otherwise have
to advance themselves for these purposes— the general form of
capital, M— M', occurs here as well. By advancing M, the advanc¬
ing capitalist secures M + aM. But promotion of M — M' does not
here concern the material, but only the technical, processes of the
metamorphosis.

It is evident that the mass of money-capital with which the
money-dealers operate is the money-capital of merchants and
industrial capitalists in the process of circulation, and that the
money-dealers’ operations are actually operations of merchants
and industrial capitalists, in which they act as middlemen.

It is equally evident tha the money-dealers’ profit is nothing
but a deduction from the surplus-value, since they operate with
already realised values (even when realised in the form of
creditors’ claims).

Just as in the commodity trade, there is a duplication of
functions, because a part of the technical operations connected
with money circulation must be carried out by the dealers and
producers of commodities themselves.

CHAPTER XX

HISTORICAL FACTS ABOUT MERCHANT’S CAPITAL

The particular form in which commercial and money-dealing
capitals accumulate money will be discussed in the next part.

It is self-evident from what has gone before that nothing could
be more absurd than to regard merchant’s capital, whether in
the shape of commercial or of money-dealing capital, as a partic¬
ular variety of industrial capital, such as, say, mining, agricul¬
ture, cattle-raising, manufacturing, transport, etc., which are
side lines of industrial capital occasioned by the division of social
labour, and hence different spheres of investment. The simple ob¬
servation that in the circulation phase of its reproduction proc¬
ess every industrial capital performs as commodity-capital and
as money-capital the very functions which appear as the exclusive
functions of the two forms of merchant’s capital, should rule out
such a crude notion. On the other hand, in commercial and money¬
dealing capital the differences between industrial capital as
productive capital and the same capital in the sphere of circulation
are individualised through the fact that the definite forms and
functions which capital assumes for the moment appear as inde¬
pendent forms and functions of a separate portion of the capital
and are exclusively bound up with it. The transmuted form of in¬
dustrial capital and the material differences between productive
capitals applied in different branches of industry, which arise from
the nature of these various branches, are worlds apart.

Aside from the crudity with which the economist generally
considers distinctions of form, which really concern him only
from their substantive side, this misconception by the vulgar
economist is explained on two additional counts. First, his

324

MERCHANT'S CAPITAL

inability to explain the peculiar nature of mercantile profit;
and, secondly, his apologetic endeavours to deduce commodity-
capital and money-capital, and later commercial capital and
money-dealing capital as forms arising necessarily from the proc¬
ess of production as such, whereas they are due to the specific
form of the capitalist mode of production, which above all presup¬
poses the circulation of commodities, and hence of money, as
its basis.

If commercial capital and money-dealing capital do not differ
from grain production any more than this differs from cattle¬
raising and manufacturing, it is plain as day that production
and capitalist production are altogether identical, and that, among
other things, the distribution of the social products among the
members of a society, be it for productive or individual consump¬
tion, must just as consistently be handled by merchants and
bankers as the consumption of meat by cattle-raising and that
of clothing by their manufacture.46

The great economists, such as Smith, Ricardo, etc., are per¬
plexed over mercantile capital being a special variety, since they
consider the basic form of capital, capital as industrial capital,
and circulation capital (commodity-capital and money-capital)
solely because it is a phase in the reproduction process of every
capital. The rules concerning the formation of value, profit, etc.,
immediately deduced by them from their study of industrial cap¬
ital, do not extend directly to merchant's capital. For this reason,
they leave merchant’s capital entirely aside and mention it only
as a kind of industrial capital. Wherever they make a special

41 The sage Mr. Roscher [Die Grundlagen der N atlonalbkonomie, 3. Auflage,
1858, § 60, S. 103. — Ed. ] has figured out that, since certain people
designate trade as mediation between producers and consumers, “one "might
just as well designate production itself as mediation of consumption (between
whom?), and this implies, of course, that merchant’s capital is as much
a part of productive capital as agricultural and industrial capital. In other
words, because I can say, that man can mediate his consumption only by;
means of production (and he has to do this even without getting his education
at Leipzig), or that labour is required for the appropriation of the products
of Nature (which might be called mediation), it follows, of course, that
social mediation arising from a specific social form of production— because
mediation— has the same absolute character of necessity, and the same
rank. The word mediation settles everything. By the way, the merchants are
not mediators between producers and consumers (consumers as distinct from
producers, coqsumers, that is, who do not produce, are left aside for the
moment), but mediators in the exchange of the products of these producers
among themselves. They are but middlemen in an exchange, which in thou¬
sands of cases proceeds without them.

FACTS ABOUT MERCHANT’S CAPITAL

325

analysis of it, as Ricardo does in dealing with foreign trade, they
seek to demonstrate that it creates no value (and consequently no
surplus-value). But whatever is true of foreign trade, is also true
of home trade.

Hitherto we have considered merchant’s capital merely from
the standpoint, and within the limits, of the capitalist mode
of production. However, not commerce alone, but also merchant’s
capital, is older than the capitalist mode of production, is, in
fact, historically the oldest free state of existence of capital.

Since we have already seen that money-dealing and the capital
advanced for it require nothing more for their development than
the existence of wholesale commerce, and further of commercial
capital, it is only the latter which we must occupy ourselves with
heTe.

Since merchant's capital is penned in the sphere of circula¬
tion, and since its function consists exclusively of promoting
the exchange of commodities, it requires no other conditions for
its existence — aside from the undeveloped forms arising from
direct barter — outside those necessary for the simple circulation
of commodities and money. Or rather, the latter is the condition
of its existence. No matter what the basis on which products are
produced, which are thrown into circulation as commodities —
whether the basis of the primitive community, of slave produc¬
tion, of small peasant and petty bourgeois, or the capitalist basis,
the character of products as commodities is not altered, and as
commodities they must pass through the process of exchange
and its attendant changes of form. The extremes between which
merchant's capital acts as mediator exist for it as given, just as
they are given for money and for its movements. The only neces¬
sary thing is that these extremes should be on hand as commod¬
ities, regardless of whether production is wholly a production of
commodities, or whether only the surplus of the independent
producers’ immediate needs, satisfied by their own production,
is thrown on the market. Merchant's capital promotes only the
movements of these extremes, of these commodities, which are
preconditions of its own existence.

The extent to which products enter trade and go through the
merchants’ hands depends on the mode of production, and reaches
its maximum in the ultimate development of capitalist produc¬
tion, where the product is produced solely as a commodity, and
not as a direct means of subsistence. On the other hand, on the
basis of every mode of production, trade facilitates the production

326

MERCHANT’S CAPITAL

of surplus-products destined for exchange, in order to increase
the enjoyments, or the wealth, of the producers (here meant
are the owners of the products). Hence, commerce imparts to
production a character directed more and more towards exchange-
value.

The metamorphosis of commodities, their movement, consists
1) materially, of the exchange of different commodities for one
another, and 2) formally, of the conversion of commodities into
money by sale, and of money into commodities by purchase. And
the function of merchant’s capital resolves itself into these very
acts of buying and selling commodities. It therefore merely pro¬
motes the exchange of commodities; yet this exchange is not to be
conceived at the outset as a bare exchange of commodities between
direct producers. Under slavery, feudalism and vassalage (so far
as primitive communities are concerned) it is the slave-owner,
the feudal lord, the tribute-collecting state, who are the owners,
hence sellers, of the products. The merchant buys and sells for
many. Purchases and sales are concentrated in his hands and
consequently are no longer bound to the direct requirements of
the buyer (as merchant).

But whatever the social organisation of the spheres of produc¬
tion whose commodity exchange the merchant promotes, his
wealth exists always in the form of money, and his money always
serves as capital. Its form is always M— C — M'. Money, the in¬
dependent form of exchange-value, is the point of departure,
and increasing the exchange-value an end in itself. Commodity
exchange as such and the operations effecting it — separated from
production and performed by non-producers — are just a means
of increasing wealth not as mere wealth, but as wealth in its most
universal social form, as exchange-value. The compelling motive
and determining purpose are the conversion of M into M + aM.
The transactions M — C and C — M', which promote M — M', ap¬
pear merely as stages of transition in this conversion of M into
M-f AM. This M — C — M', the characteristic movement of mer¬
chant’s capital, distinguishes it from C— M— C, trade in com¬
modities directly between producers, which has for its ultimate
end the exchange of use-values.

The less developed the production, the more wealth in money
is concentrated in the hands of merchants or appears in the
specific form of merchants’ wealth.

Within the capitalist mode of production — i.e., as soon as
capital has established its sway over production and imparted
to it a wholly changed and specific form — merchant’s capital

FACTS ABOUT MERCHANT'S CAPITAL

327

appears merely as a capital with a specific function. In all pre¬
vious modes of production, and all the more, wherever production
ministers to the immediate wants of the producer, merchant’s
capital appears to perform the function par excellence of capital.

There is, therefore, not the least difficulty in understanding
why merchant’s capital appears as the historical form of capital
long before capital established its own domination over produc¬
tion. Its existence and development to a certain level are in them¬
selves historical premises for the development of capitalist pro¬
duction 1) as premises for the concentration of money wealth,
and 2) because the capitalist mode of production presupposes pro¬
duction for trade, selling on a large scale, and not to the individ¬
ual customer, hence also a merchant who does not buy to satisfy
his personal wants but concentrates the purchases of many buyers
in his one purchase. On the other hand, all development of
merchant's capital tends to give production more and more the
character of production for exchange-value and to turn products
more and more into commodities. Yet its development, as we
shall presently see, is incapable by itself of promoting and ex¬
plaining the transition from one mode of production to another.

Within capitalist production merchant's capital is reduced
from its former independent existence to a special phase in the
investment of capital, and the levelling of profits reduces its
rate of profit to the general average. It functions only as an agent
of productive capital. The special social conditions that take
shape with the development of merchant’s capital, are here no
longer paramount. On the contrary, wherever merchant’s capital
still predominates we find backward conditions. This is true even
within one and the same country, in which, for instance, the spe¬
cifically merchant towns present far more striking analogies with
past conditions than industrial towns.46

The independent and predominant development of capital as
merchant’s capital is tantamount to the non-subjection of pro-

48 Herr W. Kiesselbach (in his Der Gang des Welthandels im Mittelalter,
i860) is indeed still enwrapped in the ideas of a world, in which merchant’s
capital is the general form of capital. He has not the least idea of the modern
meaning of capital, any more than Mommsen when he speaks in his history
of Rome of “capital” and the rule of capital. In modern English history,
the commercial estate proper and the merchant towns are also politically
reactionary and in league with the landed and moneyed interest against
industrial capital. Compare, for instance, the political role of Liverpool
with that of Manchester and Birmingham. The complete rule of industrial
capital was not acknowledged by English merchant's capital and moneyed
interest until after the abolition of the corn tax, etc.

328

MERCHANT’S CAPITAL

duction to capital, and hence to capital developing on the basis
of an alien social mode of production which is also independent
of it. The independent development of merchant’s capital, there¬
fore, stands in inverse proportion to the general economic develop¬
ment of society.

Independent mercantile wealth as a predominant form of cap¬
ital represents the separation of the circulation process from
its extremes, and these extremes are the exchanging producers
themselves. They remain independent of the circulation process,
just as the latter remains independent of them. The product
becomes a commodity by way of commerce. It is commerce which
here turns products into commodities, not the produced com¬
modity which by its movements gives rise to commerce. Thus,
capital appears here first as capital in the process of circulation.
It is in the circulation process that money develops into capital.
It is in circulation that products first develop as exchange-values,
as commodities and as money. Capital can, and must, form in
the process of circulation, before it learns to control its extremes
— the various spheres of production between which circulation
mediates. Money and commodity circulation can mediate be¬
tween spheres of production of widely different organisation,
whose internal structure is still chiefly adjusted to the output
of use-values. This individualisation of the circulation process,
in which spheres of production are interconnected by means of
a third, has a two-fold significance. On the one hand, that cir¬
culation has not as yet established a hold on production, but is
related to it as to a given premise. On the other hand, that the
production process has not as yet absorbed circulation as a mere
phase of production. Both, however, are the case in capitalist
production. The production process rests wholly upon circulation,
and circulation is a mere transitional phase of production, in
which the product created as a commodity is realised and its
elements of production, likewise created as commodities, are
replaced. That form of capital — merchant’s capital — which devel¬
oped directly out of circulation appears here merely as one
of the forms of capital occurring in its reproduction process.

The law that the independent development of merchant’s cap¬
ital is inversely proportional to the degree of development of
capitalist production is particularly evident in the history of
the carrying trade, as among the Venetians, Genoese, Dutch, etc.,
where the principal gains were not thus made by exporting dom¬
estic products, but by promoting the exchange of products of
commercially and otherwise economically undeveloped societies,

FACTS ABOUT MERCHANT’S CAPITAL

329

and by exploiting both producing countries.47 Here, merchant's
capital is in its pure form, separated from the extremes — the
spheres of production between which it mediates. This is the
main source of its development. But this monopoly of the carrying
trade disintegrates, and with it this trade itself, proportionately
to the economic development of the peoples, whom it exploits
at both ends of its course, and whose lack of development was
the basis of its existence. In the case of the carrying trade this
appears not only as the decline of a special branch of commerce,
but also that of the predominance of the purely trading nations,
and of their commercial wealth in general, which rested upon
the carrying trade. This is but a special form, in which is ex¬
pressed the subordination of merchants to industrial capital with
the advance of capitalist production. The behaviour of merchant's
capital wherever it rules over production is strikingly illustrated
not only by the colonial economy (the so-called colonial system)
in general, but quite specifically by the methods of the old Dutch
East India Company.

Since the movement of merchant’s capital is M — C — M\ the
merchant’s profit is made, first, in acts which occur only within
the circulation process, hence in the two acts of buying and
selling; and, secondly, it is realised in the last act, the sale. It is
therefore profit upon alienation. Prima facie, a pure and independent
commercial profit seems impossible so long as products are sold
at their value. To buy cheap in order to sell dear is the rule of
trade. Hence, not the exchange of equivalents. The conception
of value is included in it in so far as the various commodities
are all values, and therefore money. In respect to quality they are
all expressions of social labour. But they are not values of equal
magnitude. The quantitative ratio in which products are exchanged
is at first quite arbitrary. They assume the form of commodi¬
ties inasmuch as they are exchangeables, i.e., expressions of one
and the same third. Continued exchange and more regular repro-

47 “The inhabitants of trading cities, by importing the improved manu¬
factures and expensive luxuries of richer countries afforded some food to
the vanity of the great proprietors, who eagerly purchased them with great
quantities of the rude produce of their own lands. The commerce of a great
part of Europe in those times, accordingly consisted chiefly, in the exchange
of their own rude produce for the manufactured produce of more civilised
nations.... When this taste became so general as to occasion a considerable
demand, the merchants, in order to save the expense of carriage, naturally
endeavoured to establish some manufactures of the same kind in their own
country.” (Adam Smith [ Wealth of Nations], Book III, Ch. Ill, London.
1776, pp. 489, 490.)

330

MERCHANT’S CAPITAL

duction for exchange reduces this arbitrariness more and more.
But at first not for the producer and consumer, but for their go-
between, the merchant, who compares money-prices and pockets
the difference. It is through his own movements that he estab¬
lishes equivalence.

Merchant’s capital is originally merely the intervening move¬
ment between extremes which it does not control, and between
premises which it does not create.

Just as money originates from the bare form of commodity-
circulation, C — M — G, not only as a measure of value and a
medium of circulation, but also as the absolute form of commod¬
ity, and hence of wealth, or hoard, so that its conservation and
accumulation as money becomes an end in itself, so, too, does
money, the hoard, as something that preserves and increases it¬
self through mere alienation, originate from the bare form of the
circulation of merchant’s capital, M — C — M'.

The trading nations of ancient times existed like the gods of
Epicurus in the intermediate worlds of the universe, or rather like
the Jews in the pores of Polish society. The trade of the first in¬
dependent flourishing merchant towns and trading nations rested
as a pure carrying trade upon the barbarism of the producing
nations, between whom they acted the middleman.

In the pre-capitalist stages of society commerce ruled industry.
In modern society the reverse is true. Of course, commerce will
have more or less of a counter-effect on the communities between
which it is carried on. It will subordinate production more and
more to exchange-value by making luxuries and subsistence
more dependent on sale than on the immediate use of the
products. Thereby it dissolves the old relationships. It multiplies
money circulation. It encompasses no longer merely the surplus of
production, but bites deeper and deeper into the latter, and makes
entire branches of production dependent upon it. Nevertheless
this disintegrating effect depends very much on the nature of the
producing community.

So long as merchant’s capital promotes the exchange of prod¬
ucts between undeveloped societies, commercial profit not only
appears as outbargaining and cheating, but also largely originates
from them. Aside from the fact that it exploits the difference be¬
tween the prices of production of various countries (and in this
respect it tends to level and fix the values of commodities), those
modes of production bring it about that merchant’s capital appro¬
priates an overwhelming portion of the surplus-product partly
as a mediator between communities which still substantially pro-

FACTS ABOUT MERCHANT'S CAPITAL

331

duce for use-value, and for whose economic organisation the sale
of the portion of their product entering circulation, or for that
matter any sale of products at their value, is of secondary impor¬
tance; and partly, because under those earlier modes of production
the principal owners of the surplus-product with whom the mer¬
chant dealt, namely, the slave-owner the feudal lord, and the
state (for instance, the oriental despot) represent the consuming
wealth and luxury which the merchant seeks to trap, as Adam
Smith correctly scented in the passage on feudal times quoted
earlier. Merchant's capital, when it holds a position of dominance,
stands everywhere for a system of robbery,48 so that its devel¬
opment among the trading nations of old and modern times is
always directly connected with plundering, piracy, kidnapping
slaves, and colonial conquest; as in Carthage, Rome, and later
among the Venetians, Portuguese, Dutch, etc.

The development of commerce and merchant’s capital gives
rise everywhere to the tendency towards production of exchange-
values, increases its volume, multiplies it, makes it cosmopol¬
itan, and develops money into world-money. Commerce, there¬
fore, has a more or less dissolving influence everywhere on the

48 “Now there is among merchants much complaint abont the nobles,
or robbers, because they must trade under great danger and run the risk of
being kidnapped, beaten, blackmailed, and robbed. If they would suffer
these things lor the sake of justice, the merchants would be saintly people....
But since such great wrong and unchristian thievery and robbery are com¬
mitted all over the world y merchants, and even among themselves, is it
any wonder that God should procure that such great wealth, gained by wrong,
should again be lost or stolen, and they themselves be hit over the head
or made prisoner?... And the princes should punish such unjust bargains
with due rigour and take care that their subjects shall not be so outrageously
abused by merchants. Because they fail to do so, God employs knights and
robbers, and punishes the merchants through them for the wrongs they com¬
mitted, and uses them as his devils, just as he plagues Egypt and all the world
with devils, or destroys through enemies. He thus pits one against the other,
without thereby insinuating that knights are any the less robbers than mer¬
chants, although the merchants daily rob the whole world, while a knight
may rob one or two once or twice a year. " “Go by the word of Isaiah: Thy
princes have become the companions of robbers. For they hang the thieves,
who have stolen a gulden or a half gulden, but they associate with those,
who rob all the world and steal with greater assurance than all others, so
that the proverb remains true: Big thieves hang little thieves; and as the
Roman senator Cato said: Mean thieves lie in prisons and stocks, but public
thieves are clothed in gold and silks. But what will God say finally? He will
do as he said to Ezekiel; he will amalgamate princes and merchants, one
thief with another, like lead and iron, as when a city burns down, leaving
neither princes nor merchants. ” (Martin Luther, Von Kaufshandlung und
Wucher, 1524, S. 296-97.)

332

MERCHANT'S CAPITAL

producing organisation, which it finds at hand and whose different
forms are mainly carried on with a view to use-value. To what
extent it brings about a dissolution of the old mode of produc¬
tion depends on its solidity and internal structure. And whither
this process of dissolution will lead, in other words, what new
mode of production will replace the old, does not depend on com¬
merce, but on the character of the old mode of production itself.
In the ancient world the effect of commerce and the development
of merchant’s capital always resulted in a slave economy; de¬
pending on the point of departure, only in the transformation
of a patriarchal slave system devoted to the production of im¬
mediate means of subsistence into one devoted to the production
of surplus-value. However, in the modern world, it results in the
capitalist mode of production. It follows therefrom that these
results spring in themselves from circumstances other than the
development of merchant's capital.

It is in the nature of things that as soon as town industry as
such separates from agricultural industry, its products are from the
outset commodities and thus require the mediation of commerce
for their sale. The leaning of commerce towards the development
of towns, and, on the other hand, the dependence of towns upon
commerce, are so far natural. However, it depends on altogether
different circumstances to what measure industrial development
will go hand in hand with this development. Ancient Rome, in
its later republican days, developed merchant’s capital to a
higher degree than ever before in the ancient world, without showing
any progress in the development of crafts, while in Corinth and
other Grecian towns in Europe and Asia Minor the development
of commerce was accompanied by highly developed crafts. On
the other hand, quite contrary to the growth of towns and attend¬
ant conditions, the trading spirit and the development of mer¬
chant’s capital occur frequently among unsettled nomadic peoples.

There is no doubt — and it is precisely this fact which has
led to wholly erroneous conceptions— that in the 16th and 17th
centuries the great revolutions, which took place in commerce
with the geographical discoveries and speeded the development
of merchant's capital, constitute one of the principal elements
in furthering the transition from feudal to capitalist mode of
production. The sudden expansion of the world-market, the mul¬
tiplication of circulating commodities, the competitive zeal of
the European nations to possess themselves of the products of
Asia and the treasures of America, and the colonial system — all
contributed materially toward destroying the feudal fetters on

FACTS ABOUT MERCHANT’S CAPITAL

333

production. However, in its first period — the manufacturing
period — the modern mode of production developed only where
the conditions for it had taken shape within the Middle Ages.
Compare, for instance, Holland with Portugal.4* And when in
the 16th, and partially still in the 17th, century the sudden expan¬
sion of commerce and emergence of a new world-market overwhelm¬
ingly contributed to the fall of the old mode of production and
the rise of capitalist production, this was accomplished conversely
on the basis of the already existing capitalist mode of production.
The world-market itself forms the basis for this mode of pro¬
duction. On the other hand, the immanent necessity of this mode of
production to produce on an ever-enlarged scale tends to extend
the world-market continually, so that it is not commerce in this
case which revolutionises industry, but industry which constantly
revolutionises commerce. Commercial supremacy itself is now
linked with the prevalence to a greater or lesser degree of condi¬
tions for a large industry. Compare, for instance, England and
Holland. The history of the decline of Holland as the ruling
trading nation is the history of the subordination of merchant’s
capital to industrial capital. The obstacles presented by the inter¬
nal solidity and organisation of pre-capitalistic, national modes of
production to the corrosive influence of commerce are strikingly
illustrated in the intercourse of the English with India and China.
The broad basis of the mode of production here is formed by the
unity of small-scale agriculture and home industry, to which
in India we should add the form of village communities built
upon the common ownership of land, which, incidentally, was
the original form in China as well. In India the English lost no
time in exercising their direct political and economic power,
as rulers and landlords, to disrupt these small economic communi¬
ties.60 English commerce exerted a revolutionary influence on

4* How predominant fishery, manufacture and agriculture, aside from
other circumstances, were as the basis for Holland's development, has
already been explained by 18th-century writers, such as Massie [p. 60]. In
contradistinction to the former view, which underrated the volume and
importance of commerce in Asia, in Antiquity, and in the Middle Ages, it
has now come to be the custom to extremely overrate it. The best antidote
against this conception is to study the imports and exports of England in
the early 18th century and to compare them with modern imports and ex¬
ports. And yet they were incomparably greater than those of any former
trading nation. (See Anderson, A n Historical and Chronological Deduction
of the Origin of Commerce. [Vol. II, London, 1764, p. 261 et seq. — £d.])

60 If any nation’s history, then the history of the English in India is a
string of futile and really absurd (in practice infamous) economic experiments.

334

MERCHANT'S CAPITAL

these . communities and tore them apart only in so far as the low
prices of its goods served to destroy the spinning and weaving in¬
dustries, which were an ancient integrating element of this unity
of industrial and agricultural production. And even so this work
of dissolution proceeds very gradually. And still more slowly
in China, where it is not reinforced by direct political power.
The substantial economy and saving in time afforded by the
association of agriculture with manufacture put up a stubborn
resistance to the products of the big industries, whose prices
include the faux frais of the circulation process which pervades
them. Unlike the English, Russian commerce, on the other
hand, leaves the economic groundwork of Asiatic production
untouched.41

The transition from the feudal mode of production is two-fold.
The producer becomes merchant and capitalist, in contrast to
the natural agricultural economy and the guild-bound handicrafts
of the medieval urban industries. This is the really revolutionising
path. Or else, the merchant establishes direct sway over produc¬
tion. However much this serves historically as a stepping-stone —
witness the English 17th-century clothier, who brings the weavers,
independent as they are, under his control by selling their wool
to them and buying their cloth — it cannot by itself contribute
to the overthrow of the old mode of production, but tends rather
to preserve and retain it as its precondition. The manufacturer
in the French silk industry and in the English hosiery and lace
industries, for example, was thus mostly but nominally a manu¬
facturer until the middle of the 19th century. In point of fact,
he was merely a merchant, who let the weavers carry on in their
old unorganised way and exerted only a merchant’s control, for
that was for whom they really worked.** This system presents
everywhere an obstacle to the real capitalist mode of produc¬
tion and goes under with its development. Without revolutionising

In Bengal they created a caricature of large-scale English landed estates;
in south-eastern India a caricature of small parcelled property; in the north¬
west they did all they could to transform the Indian economic community
with common ownership of the soil into a caricature of itself.

51 Since Russia has been making frantic exertions to develop its own
capitalist production, which is exclusively dependent upon its domestic and
the neighbouring Asiatic market, this is also beginning to change. — F.E.

61 The same is true of the ribbon and basting makers and the silk weavers
of the Rhine. Even a railway has been built near Krefeld for the intercourse
of these rural hand-weavers with the town “manufacturer. " But this was
later put out of business, together with the hand-weavers, by the mechanical
weaving industry. — F.E.

PACTS ABOUT MERCHANT’S CAPITAL

335

the mode of production, it only worsens the condition of the direct
producers, turns them into mere wage-workers and proletarians
under conditions worse than those under the immediate control
of capital, and appropriates their surplus-labour on the basis of
the old mode of production. The same conditions exist in some¬
what modified form in part of the London handicraft furniture
industry. It is practised notably in the Tower Hamlets on a very
large scale. The whole production is divided into very numerods
separate branches of business independent of one another. One
establishment makes only chairs, another only tables, a third only
bureaus, etc. But these establishments themselves are run more
or less like handicrafts by a single minor master and a few jour¬
neymen. Nevertheless, production is too large to work directly for
private persons. The buyers are the owners of furniture stores.
On Saturdays the master visits them and sells his product, the
transaction being closed with as much haggling as in a pawn¬
shop over a loan. The masters depend on this weekly sale, if for
no other reason than to be able to buy raw materials for the fol¬
lowing week and to pay out wages. Under these circumstances,
they are really only middlemen between the merchant and their
own labourers. The merchant is the actual capitalist who pockets
the lion’s share of the surplus-value.53 Almost the same applies
in the transition to manufacture of branches formerly carried
on as handicrafts or side lines to rural industries. The transition
to large-scale industry depends on the technical development of
these small owner-operated establishments— wherever they employ
machinery that admits of a handicraft-like operation. The ma¬
chine is driven by steam, instead of by hand. This is of late the
case, for instance, in the English hosiery industry.

There is, consequently, a three-fold transition. First, the mer¬
chant becomes directly an industrial capitalist. This is true in
crafts based on trade, especially crafts producing luxuries and
imported by merchants together with the raw materials and
labourers from foreign lands, as in Italy from Constantinople in
the 15th century. Second, the merchant turns the small masters
into his middlemen, or buys directly from the independent
producer, leaving him nominally independent and his mode of
production unchanged. Third, the industrialist becomes merchant
and produces directly for the wholesale market.

S3 This system has been developed since 1865 on a still larger scale. For
details see the First Report of the Select Committee of the House of Lords
on the Sweating System, London, 1888. — F.E.

336

MERCHANT’S CAPITAL

In the Middle Ages, the merchant was merely one who, as Poppe
rightly says, “transferred ” the goods produced by guilds or peas¬
ants.* The merchant becomes industrialist, or rather, makes crafts¬
men, particularly the small rural producers, work for him. Con¬
versely, the producer becomes merchant. The master weaver,
for instance, buys his wool or yarn himself and sells his cloth
to the merchant, instead of receiving his wool from the merchant
piecemeal and working for him together with his journeymen.
The elements of production pass into the production process as
commodities bought by himself. And instead of producing for
some individual merchant, or for specified customers, he produces
for the world of trade. The producer is himself a merchant. Mer¬
chant's capital does no mora than carry on the process of circula¬
tion. Originally, commerce was the precondition for the trans¬
formation of the crafts, the rural domestic industries, and feudal
agriculture, into capitalist enterprises. It develops the product
into a commodity, partly by creating a market for it, and partly
by introducing new commodity equivalents and supplying pro¬
duction with new raw and auxiliary materials, thereby opening
new branches of production based from the first upon commerce,
both as concerns production for the home and world-market, and
as concerns conditions of production originating in the world-
market. As soon as manufacture gains sufficient strength, and
particularly large-scale industry, it creates in its turn a market
for itself, by capturing it through its commodities. At this point
commerce becomes the servant of industrial production, for which
continued expansion of the market becomes a vital necessity.
Ever more extended mass production floods the existing market
and thereby works continually for a still greater expansion of
this market, for breaking out of its limits. What restricts this
mass production is not commerce (in so far as it expresses the
existing demand), but the magnitude of employed capital and
the level of development of the productivity of labour. The
industrial capitalist always has the world-market before him,
compares, and must constantly compare, his own cost-prices with
the market-prices at home, and throughout the world. In the
earlier period such comparison fell almost entirely to the mer¬
chants, and thus secured the predominance of merchant’s capital
over industrial capital.

* Poppe, Geschlchte der Technologic seit der Wiederherstellung der Wis-
tentchaften bit an dat Ende des achtzehnten J ahrhunderls, Band I, GottlDgen,
1807, S. 70 -Ed.

FACTS ABOUT MERCHANT’S CAPITAL

337

The first theoretical treatment of the modern mode of produc¬
tion — the mercantile system— proceeded necessarily from the
superficial phenomena of the circulation process as individualised
in the movements of merchant’s capital, and therefore grasped
only the appearance of matters. Partly because merchant’s capital
is the first free state of existence of capital in general. And partly
because of the overwhelming influence which it exerted during
the first revolutionising period of feudal production — the genesis
of modern production. The real science of modern economy only
begins when the theoretical analysis passes from the process of
circulation to the process of production. Interest-bearing capital is,
indeed, likewise a very old form of capital. But we shall see later
why mercantilism does not take it as its point of departure, but
rather carries on a polemic against it.

PART V

DIVISION OF PROFIT
INTO INTEREST AND PROFIT
OF ENTERPRISE.
INTEREST-BEARING CAPITAL

CHAPTER XXI

INTEREST-BEARING CAPITAL

In our first discussion of the general, or average, rate of profit
(Part II of this book) we did not have this rate before us in its
Complete form, the equalisation of profit appearing only as equali¬
sation between industrial capitals invested in different spheres.
This was supplemented in the preceding part, which dealt with
the participation of merchant’s capital in this equalisation, and
also commercial profit. The general rate of profit and the aver¬
age profit now appeared in narrower limits than before. It should
be remembered in the course of our analysis that in any future
reference to the general rate of profit or to average profit we mean
this latter connotation, hence only the final form of average rate.
And since this rate is the same for mercantile, as well as indus¬
trial, capital, it is no longer necessary, so far as this average
profit is concerned, to make a distinction between industrial and
commercial profit. Whether industrially invested in the sphere of
production, or commercially in the sphere of circulation, capital
yields the same average annual profit pro rata to its magnitude.

Money — here taken as the independent expression of a certain
amount of value existing either actually as money or as com¬
modities— may be converted into capital on the basis of capi¬
talist production, and may thereby be transformed from a given
value to a self-expanding, or increasing, value. It produces
profit, i.e., it enables the capitalist to extract a certain quantity
of unpaid labour, surplus-product and surplus-value from the
labourers, and to appropriate it. In this way, aside from its use-
value as money, it acquires an additional use-value, namely that
of serving as capital. Its use-value then consists precisely in the

INTEREST-BEARING CAPITAL

339

profit it produces when converted into capital. In this capacity
of potential capital, as a means of producing profit, it becomes
a commodity, but a commodity sui generis. Or, what amounts
to the same, capital as capital becomes a commodity.81

Suppose the annual average rate of profit is 20%. In that case
a machine valued at £100, employed as capital under average
conditions and an average amount of intelligence and purposive
effort, would yield a profit of £20. A man in possession of £100,
therefore, possesses the power to make £120 out of £100, or to
produce a profit of £20. He possesses a potential capital of £100.
If he gives these £100 to another for one year, so the latter may
use them as real capital, he gives him the power to produce a
profit of £20 — a surplus-value which costs this other nothing,
and for which he pays no equivalent. If this other should pay,
say, £5 at the close of the year to the owner of the £100 out of
the profit produced, he would thereby pay the use-value of the
£100 — the use-value of its function as capital, the function
of producing a profit of £20. The part of the profit paid to the
owner is called interest, which is just another name, or special
term, for a part of the profit given up by capital in the process
of functioning to the owner of the capital, instead of putting it
into its own pocket.

It is plain that the possession of £100 gives their owner the power
to pocket the interest — that certain portion of profit produced
by means of his capital. If he had not given the £100 to the other
person, the latter could not have produced any profit, and could
not at all have acted as a capitalist with reference to these £100. 56

To speak here of natural justice, as Gilbart does (see note),
is nonsense. The justice of the transactions between agents of pro¬
duction rests on the fact that these arise as natural consequences
out of the production relationships. The juristic forms in which
these economic transactions appear as wilful acts of the parties
concerned, as expressions of their common will and as contracts
that may be enforced by law against some individual party, can¬
not, being mere forms, determine this content. They merely express

M At this point certain passages may be quoted, in which the economists
so conceive the matter. — “You (the Bank of England) are very large dealers
in the commodity of capital ?" is the question posed to a director of this bank
when he was interrogated for the Report on Bank Acts on the witness stand.
(H. of C. 1857, p. 104.)

15 “That a man who borrows money with a view of making a profit by
it, should give some portion of his profit to the lender, is a self-evident
principle ofnatural justice.” (Gilbart, The History and Principles of Bank¬
ing, London, 1834, p. 163.)

340

DIVISION OF PROFIT

it. This content is just whenever it corresponds, is appropriate,
to the mode of production. It is unjust whenever it contradicts
that mode. Slavery on the basis of capitalist production is un¬
just; likewise fraud in the quality of commodities.

The £100 produce the profit of £20 because they function as
capital, be it industrial or mercantile. But the sine qua non of
this function as capital is that they are expended as capital, i.e.,
are expended in purchasing means of production (in the case of
industrial capital) or commodities (in the case of merchant’s
capital). But to be expended, they must be available If A, the
owner of the £100, were either to spend them for personal con¬
sumption, or to keep them as a hoard, they could not have been
invested as capital by B in his capacity of functioning capitalist.
B does not expend his own capital, but A's; however, he can¬
not expend A’s capital without A’s consent. Therefore, it is really
A who originally expends the £100 as capital, albeit his function
as capitalist is limited to this outlay of £100 as capital. In respect
to these £100, B acts as capitalist only because A lends him the
£100, thus expending them as capital.

Let us first consider the singular circulation of interest-bearing
capital. We shall then secondly have to analyse the peculiar
manner in which it is sold as a commodity, namely loaned instead
of relinquished once and for all.

The point of departure is the money which A advances to* B.
This may be done with or without security. The first-named form,
however, is the more ancient, save advances on commodities or
paper, such as bills of exchange, shares, etc. These special forms
do not concern us at this point. We are dealing here with interest-
bearing capital in its usual form.

In B's possession the money is actually converted into capital,
passes through M— C— M' and returns to A as M', as M+aM,
where AM represents the interest. For the sake of simplicity we
shall not consider here the case, in which capital remains in B’s
possession for a long term and interest is paid at regular intervals.

The movement, therefore, is

M-M-C-M'-M'.

What appears duplicated here, is 1) the outlay of money as
capital, and 2) its reflux as realised capital, as M' or M+aM.

In the movement of merchant’s capital, M — C — M', the same
commodity changes hands twice, or more than twice, if mer¬
chant sells to merchant. But every such change of place of the
same commodity indicates a metamorphosis, a purchase or sale

INTEREST-BEARING CAPITAL

341

of the commodity, no matter how often the process may be
repeated, until it enters consumption.

On the other hand, the same money changes hands twice in
C — M — C, but this indicates the complete metamorphosis of the
commodity, which is first converted into money and then from
money back into another commodity.

But in interest-bearing capital the first time M changes hands
is by no means a phase either of the commodity metamorphosis,
or of reproduction of capital. It first becomes one when it is ex¬
pended a second time, in the hands of the active capitalist who
carries on trade with it, or transforms it into productive capital.
M’s first change of hands does not express anything here, beyond
its transfer from A to B— a transfer which usually takes place
under certain legal forms and stipulations.

This double outlay of money as capital, of which the first is
merely a transfer from A to B, is matched by its double reflux.
As M\ or M-+-AM, it flows back out of the process to B, the per¬
son acting as capitalist. The latter then transfers it back to A,
but together with a part of the profit, as realised capital, as M+AM,
in which AM is not the entire profit, but only a portion of the
profit— the interest. It flows back to B only as what he had ex¬
pended, as functioning capital, but as the property of A. To make
its reflux complete, B must consequently return it to A. But in
addition to the capital, B must also turn over to A a portion of
the profit, a part which goes under the name of interest, which
he had made with this capital since A had given him the money
only as a capital, i.e., as value which is not only preserved in
its movement, but also creates surplus-value for its owner. It
remains in B’s hands only so long as it is functioning capital.
And with its reflux— on the stipulated date — it ceases to func¬
tion as capital. When no longer acting as capital, however, it
must again be returned to A, who had never ceased being its legal
owner.

The form of lending, which is peculiar to this commodity, to
capital as commodity, and which also occurs in other transactions
instead of that of sale, follows from the simple definition that
capital obtains here as a commodity, or that money as capital
becomes a commodity.

A distinction should be made here.

We have seen (Book II, Chap. I), and recall briefly at this point,
that in the process of circulation capital serves as commodity-
capital and money-capital. But in neither form does capital be¬
come a commodity as capital.

12 — 2494

342

DIVISION OP PROPIT

As soon as productive capital turns into commodity-capital
it must be placed on the market to be sold as a commodity. There
it acts simply as a commodity. The capitalist then appears only
as the seller of commodities, just as the buyer is only the buyer
of commodities. As a commodity the product must realise its
value, must assume its transmuted form of money, in the process
of circulation by its sale. It is also quite immaterial for this reason,
whether this commodity is bought by a consumer as a necessity
of life, or by a capitalist as means of production, i.e., as a com¬
ponent part of his capital. In the act of circulation commodity-ca¬
pital acts only as a commodity, not as a capital. It is commodity-
capital, as distinct from an ordinary commodity, 1) because
it is weighted with surplus-value, the realisation of its value,
therefore, being simultaneously the realisation of surplus-value;
but this alters nothing about its simple existence as a commodity,
as a product with a certain price; 2) because its function as a com¬
modity is a phase in its process of reproduction as capital, and
therefore its movement as a commodity being only a partial move¬
ment of its process, is simultaneously its movement as capital.
Yet it does not become that through the sale as such, but only
through the connection of the sale with the whole movement of
this specific quantity of value in the capacity of capital.

In the same way as money-capital it really acts simply as money,
i.e., as a means of buying commodities (the elements of pro¬
duction). The fact that this money is simultaneously money-
capital, a form of capital, does not emerge from the act of buying,
the actual function which it here performs as money, but from
the connection of this act with the total movement of capital,
since this act, performed by capital as money, initiates the
capitalist production process.'

But in so far as they actually function, i.e., actually play
a role in the process, commodity-capital acts here only as a com¬
modity and money-capital only as money. At no time during the
metamorphosis, viewed by itself, does the capitalist sell his com¬
modities as capital to the buyer, although to him they represent
capital; nor does he give up money as capital to the seller. In both
cases he gives up his commodities simply as commodities, and
money simply as money, i.e. , as a means of purchasing commodities.

It is only in connection with the entire process, at the moment
where the point of departure appears simultaneously as the point
of return, in M — M' or C — C\ that capital in the process of
circulation appears as capital (whereas in the process of
production it appears as capital through the subordination of the

INTEREST-BEARING CAPITAL

343

labourer to the capitalist and the production of surplus value).
In this moment of return, however, the connection disappears.
What we have then is M', or M+AM, a sum of money equal to the
sum originally advanced plus an increment — the realised
surplus-value (regardless of whether the amount of value increased
by AM exists in the form of money, or commodities, or elements
of production). And it is precisely at this point of return where
capital exists as realised capital, as an expanded value, that it
never enters the circulation in this form — In so far as this point
is fixed as a point of rest, whether real or imaginary — but rather
appears to have been withdrawn from circulation as a result of
the whole process. Whenever it is again expended, it is never given
up to another as capital, but is sold to him as an ordinary com¬
modity, or given to him as ordinary money in exchange for commod¬
ities. It never appears as capital in its process of circulation, only
as commodity or money, and at this point this is the only form of
its existence for others. Commodities and money are here capital
not because commodities change into money, or money into com¬
modities, not in their actual relations to sellers or buyers, but
only in their ideal relations to the capitalist himself (subjectively
speaking), or as phases in the process of reproduction (objectively
speaking). Capital exists as capital in actual movement, not in
the process of circulation, but only in the process of production,
in the process by which labour-power is exploited.

The matter is different with interest-bearing capital, how¬
ever, and it is precisely this difference which lends it its specific
character. The owner of money who desires to enhance his money
as interest-bearing capital, turns it over to a third person, throws
it into circulation, turns it into a commodity ds capital ; not just
capital for himself, but also for others. It is not capital merely
for the man who gives it up, but is from the very first given to
the third person as capital, as a value endowed with the use-
value of creating surplus-value, of creating profit; a value which
preserves itself in its movement and returns to its original owner,
in this case the owner of money, after performing its function.
Hence it leaves him only for a specified time, passes but tempo¬
rarily out of the possession of its owner into the possession of a func¬
tioning capitalist, is therefore neither given up in payment nor
sold, but merely loaned, merely relinquished with the understand¬
ing that, first, it shall return to its point of departure after a
definite time interval, and, second, that it shall return as realised
capital--a capital having realised its use-value, its power of
creating surplus-value.

12*

344

DIVISION OF PROFIT

Commodities loaned out as capital are loaned either as fixed
or as circulating capital, depending on their properties. Money
may be loaned out in either form. It may be loaned as fixed cap<-
ital, for instance, if it is paid back in the form of an annuity,
whereby a portion of the capital flows back together with the in¬
terest. Certain commodities, such as houses, ships, machines,
etc., can be loaned out only as fixed capital by the nature of their
use-values. Yet all loaned capital, whatever its form, and no
matter how the nature of its use-value may modify its return,
is always only a specific form of money-capital. Because what
is loaned out is always a definite sum of money, and it is this
sum on which interest is calculated. Should whatever is loaned
out be neither money nor circulating capital, it is also paid back
in the way fixed capital returns. The lender periodically receives
interest and a portion of the consumed value of the fixed capital
itself, this being an equivalent for the periodic wear and tear.
And at the end of the stipulated term the unconsumed portion
of the loaned fixed capital is returned in kind. If the loaned
capital is circulating capital, it is likewise returned in the
manner peculiar to circulating capital.

The manner of reflux is, therefore, always determined by the
actual circuit described by capital in the act of reproduction and by
its specific varieties. But as for loaned capital, its reflux assumes
the form of return payments, because its advance, by which it is
transferred, possesses the form of a loan.

In this chapter we treat only of actual money-capital, from
which the other forms of loaned capital are derived.

The loaned capital flows back in two ways. In the process of
reproduction it returns to the functioning capitalist, and then
its return repeats itself once more as transfer to the lender, the
money-capitalist, as return payment to the real owner, its legal
point of departure.

In the actual process of circulation, capital appears always
as a commodity or as money, and its movement always is broken
up into a series of purchases and sales. In short, the process of cir¬
culation resolves itself into the metamorphosis of commodities.
It is different, when we consider the process of reproduction as
a whole. If we start out with money (and the same is true if we
start out with commodities, since we begin with their value,
hence view them sab specie as money), we shall see that a certain
sum of money is expended and returns after a certain period with
an increment. The advanced sum of money returns together with
a surplus-value. It has remained intact and increased in making

INTEREST-BEARING CAPITAL

345

a certain cycle. But now, being loaned out as capital, money is
loaned as just the sum of money which preserves and expands
itself, which returns after a certain period with an increment,
and is always ready to perform the same process over again. It
is expended neither as money nor as a commodity, thus, neither
exchanged against a commodity when advanced in the form of
money, nor sold in exchange for money when advanced as a com¬
modity; rather, it is expended as capital. This relation to itself, in
which capital presents itself when the capitalist production
process is viewed as a whole and as a single unity, and in which
capital appears as money that begets money, is here imparted to it
as its character, its designation, without any intermediary move¬
ment. And it is relinquished with this designation when loaned
out as money-capital.

A queer conception of the role of money-capital is held by Prou¬
dhon (Gratuite du Credit. Discussion entre M . F. Bastiat et M.
Proudhon, Paris, 1850). Loaning seems an evil to Proudhon be¬
cause it is not selling. Loaning for an interest is “the faculty of
selling the same article over and over again, and of receiving Its
price again and again, without once relinquishing ownership of
the object which is being sold” (p. 9).* The object — money, a hpuse,
etc. — does not change owners as in selling and buying. But Prou¬
dhon does not see that no equivalent is received in return for
money given away in the form of interest-bearing capital. True,
the object is given away in every act of buying and selling, so -far
as there are processes of exchange at all. Ownership of the sold
article is always relinquished. But its value is not given up. In
a sale the commodity is given away, but not its value, which is
returned in the form of money, or in what is here just another
form of it — promissory notes, or titles of payment. When pur¬
chasing, the money is given away, but not its value, which is
replaced in the form of commodities. The industrial capitalist
retains the same value in his hands throughout the process of
reproduction (excluding surplus-value), but in different forms.

Inasmuch as there is an exchange, i.e., an exchange of articles,
there is no change in the value. The same capitalist always re¬
tains the same value. But so long as surplus-value is produced
by the capitalist, there is no exchange. As soon as an exchange
occurs, the surplus-value is already incorporated in the com¬
modities. If we view the entire circuit made by capital, M — C — M',

* The cited words belong to Cheve, one of the editors of the newspaper
La Voix du peuple, and the author of the “first letter” in the book Gratuiti
du Cridit. Discussion entre M. F. Bastiat et M. Proudhon, Paris, 1850. — Ed.

346

DIVISION OF PROFIT

rather than ihdividual arts of exchange, we shall see that a def¬
inite amount of value is continually advanced, and that this same
amount plus surplus-value, or profit, is withdrawn from circulation.
The actual acts of exchange do not, at any rate, reveal how this
process is promoted. And it is precisely this process of M as cap¬
ital, on which the interest of the money-lending capitalist rests,
and from which it is derived.

“In fact,” says Proudhon, “the hat-maker, who sells hats...
receives their value, neither more nor less. But the money-lending
capitalist ... does not recover just his capital, he recovers more
than his capital, more than he throws into the exchange; he re¬
ceives an interest over and above his capital” (p. 69). Here the
hatter represents the productive capitalist as distinct from the
loan capitalist. Proudhon has obviously failed to grasp the secret
of how the productive capitalist can sell commodities at their
value (equalisation through prices of production is here imma¬
terial to his conception) and receive a proGt over and above the
capital he flings into exchange. Suppose the price of production
of 100 hats — £115, and that this price of production happens
to coincide with the value of the hats, which means that the cap¬
ital producing the hats is of the same composition as the aver¬
age social capital. Should the proGt = 15%, the hatter makes
a profit of £15 by selling his commodities at their value of £115.
They cost him only £100. If he produced them with his own cap¬
ital, he pockets the entire surplus of £15 but if with borrowed
capital, he may have to give up £5 as interest. This alters nothing
in the value of the hats, only in the distribution among different
persons of the surplus-value already contained in this value.
Since, therefore, the value of the hats is not affected by the pay¬
ment of interest, it is nonsense on Proudhon’s part to say: “As
in commerce the interest on capital is added to the wages of
labourers in making up the price of commodities, it is impossible
for the labourer to buy back the product of his own labour. Vivre
en travaillant is a principle which contains a contradiction under
the rule of interest” (p. 105).“

“ “A house,” “money," etc., are not to be loaned as “capital” if Prou¬
dhon is to have his way, but are to be sold as “commodities ... at cost-price”
(p. 44). Luther stood somewhat above Proudhon. He knew that profit-making
does not depend on the manner of lending or buying: “They turn buying
also into usury. But this is really too much to bite off at once. We must
first confine ourselves to one thing, usury in lending, and after we have stopped
that (after judgement-day), we shall not fail to preach against usury in
buying." (Martin Luther, An die Pfarherrn wider den l Vucher zu predigen,
Wittenberg, 1540.)

INTEREST-BEARING CAPITAL

347

How little Proudhon understood the nature of capital is shown
in the following statement, in which he describes the movement
of capital in general as a movement peculiar to interest-bearing
capital: “Since money-capital returns to its source from exchange
through the accumulation of interest, it follows that reinvestment
always made by the same individual continually brings profit
to the same person,” p. 154.

What is it that still puzzles him in the peculiar movement of
interest-bearing capital? The categories: buying, price, giving up
articles, and the immediate form in which surplus-value appears
here; in short, the phenomenon that capital as such has become
a commodity, that selling, consequently, has turned into lending
and price into a share of the profit.

The return of capital to its point of departure is generally the
characteristic movement of capital in its total circuit. This
is by no means a feature of interest-bearing capital alone. What
singles it out is rather the external form of its return without
the intervention of any circuit. The loaning capitalist gives
away his capital, transfers it to the industrial capitalist, without
receiving any equivalent. His transfer is not an act belonging to
the real circulation process of capital at all. It serves merely to
introduce this circuit, which is effected by the industrial
capitalist. This first change of position of money does not express
any act of the metamorphosis —neither buying nor selling. Owner¬
ship is not relinquished, because there is no exchange and no
equivalent is received. The return of the money from the hands
of the industrial capitalist to those of tho loaning capitalist merely
supplements the first act of giving away the capital. Advanced
in the form of money, the capital again returns to the industrial
capitalist through the circular process in the form of money.
But since it did not belong to him when he invested it, it cannot
belong to him on its return. Passing through the process of repro¬
duction cannot by any means turn the capital into his property.
He must therefore restore it to the lender. The first expenditure,
which transfers the capital from the lender to the borrower, is
a legal transaction which has nothing to do with the actual proc¬
ess of reproduction. It is merely a prelude to this process. The
return payment, which again transfers the capital that has flowed
back from the borrower to the lender is another legal transaction,
a supplement of the first. One introduces the actual process, the
other is an act supplementary to this process. Point of depar¬
ture and point of return, the giving away and the recovery of the
loaned capital, thus appear as arbitrary movements promoted

348

DIVISION OF PROFIT

by legal transactions, which take place before and after the actual
movement of capital and have nothing to do with it as such. It
would have been all the same as concerns this actual movement
if the capital had from the first belonged to the industrial capi¬
talist and had returned to him, therefore, as his own.

In the first introductory act the lender gives his capital to the
borrower. In the supplemental and closing act the borrower
returns the capital to the lender. As concerns the transaction
between these two — and aside from the interest for the present —
as concerns the movement of the loaned capital between lender
and borrower, therefore, the two acts (separated by a longer or
shorter time interval, during which the actual reproduction process
of the capital takes place) embrace the entire movement. And this
movement, disposing on condition of returning, constitutes per
se the movement of lending and borrowing, that specific form
of conditionally alienating money or commodities.

The characteristic movement of capital in general, the return
of the money to the capitalist, i.e., the return of capital to its
point of departure, assumes in the case of interest-bearing capital
a wholly external appearance, separated from the actual movement,
of which it is a form. A gives away his money not as money, but
as capital. No transformation occurs in the capital. It merely
changes hands. Its real transformation into capital does not take
place until it is in the hands of B. But for A it becomes capital
as soon as he gives it to B. The actual reflux of capital from the
processes of production and circulation takes place only for B.
But for A the reflux assumes the same form as the alienation. The
capital returns from B to A. Giving away, i.e., loaning money
for a certain time and receiving it back with interest (surplus-
value) is the complete form of the movement peculiar to interest-
bearing capital as such. The actual movement of loaned money
as capital is an operation lying outside the transactions between
lender and borrower. In these the intermediate act is obliterated,
invisible, not directly included. A special sort of commodity,
capital has its own peculiar mode of alienation. Neither does its
return, therefore, express itself as the consequence and result
of some definite series of economic processes, but as the effect of
a specific legal agreement between buyer and seller. The time
of return depends on the progress of the process of reproduction;
in the case of interest-bearing capital, its return as capital seems
to depend on the mere agreement between lender and borrower.
So that in regard to this transaction the return of capital no longer
appears as a result arising out of the process of reproduction;

INTEREST-BEARING CAPITAL

349

it appears as if the loaned capital never lost the form of money.
To be sure, these transactions are really determined by the ac¬
tual reproductive returns. But this is not evident in the transac¬
tion itself. Nor is it by any means always the case in practice.
If the actual return does not take place in due time, the borrower
must look for other resources to meet his obligations vis-a-vis
the lender. The bare form of capital — money expended as a

certain sum, A, which returns as sum A+ -^-A after a given lapse

of time without any other intermediate act save this lapse of
time — is only a meaningless form of the actual movement of
capital.

In the actual movement of capital its return is a phase in the
process of circulation. The money is first converted into means
of production; production transforms them into commodities;
through, sale of the commodities they aro reconverted into money
and return in this form into the hands of the capitalist who had
originally advanced the capital in the form of money. But in the
case of interest-bearing capital, the return, like alienation, is
the result of a legal transaction between the owner of the capi¬
tal and a second party. We see only the alienation and the return
payment. Whatever passes in the interim is obliterated.

But since money advanced as capital has the property of re¬
turning to the person who advanced it, to the one who expended
it as capital, and since M — G — M' is the immanent form of the
movement of capital, the owner of the money can, for this very
reason, loan it out as capital, as something that has the property of
returning to its point of departure, of preserving, and increasing,
its value in the course of its movement. He gives it away as
capital, because it returns to its point of departure after having been
employed as capital, hence can be restored by the borrower after
a certain period precisely because it has come back to him.

Loaning money as capital — its alienation on the condition
of it being returned after a certain time — presupposes, therefore,
that it will be actually employed as capital, and that it actually
flows back to its starting-point. The real cycle made by money
as capital is, therefore, the premise for the legal transaction by
which the borrower must return the money to the lender. If the
borrower does not use the money as capital, that is his own busi¬
ness. The lender loans it as capital, and as such it is supposed
to perform the functions of capital, which include the circuit
of money-capital until it returns to its starting-point in the form
of money.

350

DIVISION OF PROFIT

The acts of circulation, M — C and C — M', in which a certain
amount of value functions as money or commodities, are but
intermediate processes, mere phases of the total movement. As
capital, it performs the entire movement M — M'. It is advanced
as money or a sum of values in one form or another, and returns
as a sum of values. The lender of money does not expend it in
purchasing commodities, or, if this sum of values is in commod¬
ity-form, does not sell it for money. He advances it as capital,
as M — M’, as a value, which returns to its point of departure after
a certain term. He lends instead of buying or selling. This lending,
therefore, is the appropriate form of alienating value as capital,
instead of alienating it as money or commodities. It does not
follow, however, that lending cannot also take the form of trans¬
actions which have nothing to do with the capitalist process
of reproduction.

We have so far only considered the movements of loaned capital
betweeh its owner and the industrial capitalist. Now we must
inquire into interest.

The lender expends his money as capital; the amount of value,
which he relinquishes to another, is capital, and consequently
returns to him. But the mere return of it would not be the reflux
of the loaned sum of value as capital , but merely the return of a
loaned sum of value. To return as capital, the advanced sum of
value must not only be preserved in the movement but must also
expand, must increase in value, i. e., must return with a surplils-
value, as M+ AM, the latter being interest or a portion of the aver¬
age profit, which does not remain in the hands of the operating
capitalist, but falls to the share of the money-capitalist.

The fact that the latter has relinquished it as capital implies
that it must be restored to him as M+AM. Later, we shall also have
to turn our attention to the form in which interest is paid in
the meantime at fixed intervals, but without the capital, whose
return follows at the end of a lengthy period.

What does the money-capitalist give to the borrower, the indus¬
trial capitalist? What does he really turn over to him? It is only
this act of handing over money which changes lending money into
alienation of money as capital, i.e., alienation of capita) as a
commodity.

It is only by this act of alienating that capital is loaned by
the money-lender as a commodity, or that the commodity at his
disposal is given to another as capital.

INTEREST-BEARING CAPITAL

351

What is alienated in an ordinary sale? Not the value of the sold
commodity, for this merely changes its form. The value exists
ideally in a commodity as its price before it actually passes as
money into the hands of the seller. The same value and the same
amount of value merely change their form. In the one instance
they exist in commodity-form, in the other in the form of money.
What is really alienated by the seller, and, therefore, passes into
the individual or productive consumption of the buyer, is the use-
value of the commodity — the commodity as a use-value.

What, now, is the use-value which the money-capitalist gives
up for the period of the loan and relinquishes to the productive
capitalist — the borrower? It is the use-value which the money
acquires by being capable of becoming capital, of performing the
functions of capital, and creating a definite surplus-value, the aver¬
age profit (whatever is above or below it appears here as a mere
accident) during its process, besides preserving its original mag¬
nitude of value. In the case of the other commodities the use-value
is ultimately consumed. Their substance disappears, and with it
their value. In contrast, the commodity-capital is peculiar in that
its value and use-value not only remain intact but also increase,
through consumption of its use-value.

It is this use-value of money as capital — this faculty of produc¬
ing an average profit — which the money-capitalist relinquishes
to the industrial capitalist for the period, during which he places
the loaned capital at the latter’s disposal.

Money thus loaned has in this respect a certain similarity with
labour-power in its relation to the industrial capitalist. With the
difference that the latter pays for the value of labour-power, where¬
as he simply pays back the value of the loaned capital. The use-
value of labour-power for the industrial capitalist is that labour-
power creates more value (profit) in its consumption than it pos¬
sesses itself, and than it costs. This additional value is use-value
for the industrial capitalist. And in like manner the use-value of
loaned capital appears as its faculty of begetting and increasing
value.

The money-capitalist, in fact, alienates a use-value, and thus
whatever he gives away is given as a commodity. It is to this ex¬
tent that the analogy with a commodity per se is complete. In the
first place, it is a value which passes from one hand to another.
In the case of an ordinary commodity, a commodity as such, the
same value remains in the hands of the buyer and seller, only in
different forms; both have the same value which they had before
the transaction, and which they had alienated — the one in the form

352

DIVISION OF PROFIT

of a commodity, the other in the form of money. The difference is
that in a loan the money-capitalist is the only one in the transaction
who gives away value; but he preserves it through the prospective
return. In the loan transaction just one party receives value, since
only one party relinquishes value. — In the second place, a real
upe-value is relinquished on the one side, and received and con¬
sumed on the other. But in contrast to ordinary commodities this
use-value is value in itself, namely the excess over the original
value realised through the use of money as capital. The profit is
this use-value.

The use-value of the loaned money lies in its being able to serve
as capital and, as such, to produce the average profit under average
conditions.47

What, now, does the industrial capitalist pay, and what is, there¬
fore, the price of the loaned capital? “That which men pay as
interest for the use of what they borrow” is, according to Massie,
“a part of the profit it is capable of producing,” 1. c., p. 498B.

What the buyer of an ordinary commodity buys is its use-value;
what he pays for is its value. What the borrower of money buys is
likewise its use-value as capital; but what does he pay for? Surely
not its price, or value, as in the case of ordinary commodities. No
change of form occurs in the value passing between borrower and
lender, as occurs between buyer and seller when it exists in one
instance in the form of money, and in another in the form of a
commodity. The sameness of the alienated and returned value
is revealed here in an entirely different way. The sum of value,
i.e., the money, is given away without an equivalent, and is
returned after a certain period . The lender always remains the owner
of the same value, even after it passes from his hands into those of
the borrower. In an ordinary exchange of commodities money
always comes from the buyer’s side; but in a loan it comes from
the side of the seller. He is the one who gives away money for a
certain period, and the buyer of capital is the one who receives
it as a commodity. But this is only possible as long as the money

47 “The equitableness of taking interest depends not upon a man’s mak¬
ing or not making profit, but upon its” (the borrowed) “being capable of
producing profit if rightly employed”. (An Essay on the Governing Causes
of the Natural Bate of Interest, wherein the sentiments of Sir W. Petty and
Mr. Locke, on that head, are considered, London, 1750, p. 49. The author of
this anonymous work is J. Massie.)

48 “Rich people, instead of employing their money themselves ... let it
out to other people for them to make profit of, reserving for the owners a pro¬
portion of the profits so made” (I. c., pp. 23-24).

INTEREST-BEARING CAPITAL

353

acts as capital and is therefore advanced. The borrower borrows
money as capital, as a value producing more value. But at the
moment when it is advanced it is still only potential capital, like
any other capital at its starting-point, the moment it is advanced.
It is only through its employment that it expands its value
and realises itself as capital. However, it has to bo returned by the
borrower as realised capital, hence as value plus surplus-value
(interest). And the latter can only be a portion of the realised
profit. Only a portion, not all of it. For the use-value of the loaned
capital to the borrower consists in producing profit for him. Other¬
wise there would not have been any alienation of use-value on the
lender’s part. On the other hand, not all the profit can fall to the
borrower’s share. Otherwise he would pay nothing for the alienat¬
ed use-value, and would return the advanced money to the lender
as ordinary money, not as capital, as realised capital, for it is
realised capital only as M }-aM.

Both of them, lender and borrower, expend the same sum of
money as capital. But it is only in the hands of the latter that it
serves as capital. The profit is not doubled by the double existence
of the same sum of money as capital for two persons. It can serve
as capital for both of them only by dividing the profit. The portion
which falls to the lender is called interest.

The entire transaction, as assumed, takes place between two
kinds of capitalists — the money-capitalist and the industrial or
merchant capitalist.

It must always be borne in mind that here capital as capital is
a commodity, or that the commodity here discussed is capital. All
the relations in evidence here would therefore be irrational from the
standpoint of an ordinary commodity, or from that of capital in so
far as it acts as a commodity-capital in the process of reproduction.
Lending and borrowing, instead of selling and buying, is a distinc¬
tion which here springs from the specific nature of the commodity —
capital. Similarly, the fact that it is interest, not the price of the
commodity, which is paid here. If we want to call interest the price
of money-capital, then it is an irrational form of price quite at
variance with the conception of the price of commodities.5® The

s* “The term ‘value,’ when applied to currency, has three several mean¬
ings ... 2) currency, actually in hand ... compared with the same amount of
currency to be received upon a future day. In this case the value of currency
is measured by the rate of interest, and the rate of interest being determined
by the ratio between the amount of liable capital and the demand for it.”
(Colonel R. Torrens, On the Operation of the Bank Charter Act of 1844, etc.,
2nd ed., 1847, pp. 5, 6.)

354

DIVISION OF PROFIT

price is bere reduced to its purely abstract and meaningless form,
signifying that it is a certain sum of money paid for something serv¬
ing in one way or another as a use-value; whereas the conception
of price really signifies the value of some use-value expressed in
money.

Interest, signifying the price of capital, is from the outset quite
an irrational expression. The commodity in question has a double
value, first a value, and then a price different from this value,
while price represents the expression of value in money. Money-
capital is nothing but a sum of money, or the value of a certain
quantity of commodities fixed in a sum of money. If a commodity
is loaned out as capital, it is only a disguised form of a sum of
money. Because what is loaned out as capital is not so and so
many pounds of cotton, but so much and so much money existing
in the form of cotton as its value. The price of capital, therefore,
refers to it as to a sum of money, even if not currency, as Mr. Tor¬
rens thinks (see Footnote 59). How, then, can a sum of value have
a price besides its own price, besides the price expressed in its
own money-form? Price, after all, is the value of a commodity
(this is also true of the market-price, whose difference from value
is not one of quality, but only one of quantity, referring only
to the magnitude of value) as distinct from its use-value. A
price which differs from value in quality is an absurd contradic¬
tion.60

Capital manifests itself as capital through self-expansion. The
degree of its self-expansion expresses the quantitative degree in
which it realises itself as capital. The surplus-value or profit pro¬
duced by it — its rate or magnitude— is measurable only by compar¬
ison with the value of the advanced capital. The greater or lesser
self-expansion of interest-bearing capital is, therefore, likewise
only measurable by comparing the amount of interest, its share in
the total profits, with the value of the advanced capital. If, there¬
fore, price expresses the value of the commodity, then interest ex¬
presses the self-expansion of money-capital and thus appears as the
price paid for it to the lender. This shows how absurd it is from
the very first to apply hereto the simple relations of exchange

80 “The ambiguity of the term ‘value of money' or ‘of the currency,
when employed indiscriminately as it is, to signify both value in exchange
for commodities and value in use of capital, is a constant source of confusion."
(Tooke, Inquiry into the Currency Principle , p. 77.) The main confusion (im¬
plied in the matter itself) that value as such (interest) becomes the use-value
of capital, has escaped Tooke.

INTEREST-BEARING CAPITAL

355

through the medium of money in buying and selling, as Proudhon
does. The basic premise is precisely that money functions as
capital and may thus be transferred as such, i.e., as potential
capital, to a third person.

Capital, however, appears here as a commodity, inasmuch as it
is offered on the market, and the use-value of money is actually
alienated as capital. Its use-value, however, lies in producing
profit. The value of money or of commodities employed as capital
does not depend on their value as money or as commodities, but
on the quantity of surplus-value they produce for their owner.
The product of capital is profit. On the basis of capitalist produc¬
tion it is merely a different use of money — whether it is expended
as money, or advanced as capital. Money, or commodities, are in
themselves potentially capital, just as labour-power is potential
capital. Because, 1) money may be converted into elements of
production and is, as is, merely an abstract expression of them —
their existence as value; 2) the material elements of wealth
have the property of potentially becoming capital, because
their supplementary opposite, which makes them into capital,
namely wage-labour, is available on the basis of capitalist produc¬
tion.

The contradictory social features of material wealth— its
antagonism to labour as wage-labour — are expressed in capitalist
property as such independently of the production process. This
particular fact, set apart from the process of capitalist production
itself, from which it constantly results and as whose constant
result it serves as a constant prerequisite, expresses itself in that
money and commodities alike are latent, potential, capital, so that
they may be sold as capital, and in that they can in this form com¬
mand the labour of others bestowing a claim to appropriate the
labour of others, and therefore represent self-expanding values.
It also becomes clearly apparent that this relationship, and not
the labour offered as an equivalent on the part of the capitalist,
supplies the title and the means to appropriate the labour of
others.

Furthermore, capital appears as a commodity, inasmuch as the
division of profit into interest and profit proper is regulated by
supply and demand, that is, by competition, just as the market-
prices of commodities. But the difference here is just as apparent
as the analogy. If supply and demand coincide, the market-price
of commodities corresponds to their price of production, i.e.,
their price then appears to be regulated by the immanent laws of
capitalist production, independently of competition, since the

356

DIVISION OF PROFIT

fluctuations of supply and demand explain nothing but deviations
of market-prices from prices of production. These deviations mu¬
tually balance one another, so that in the course of certain longer
periods the average market-prices equal the prices of production.
As soon as supply and demand coincide, these forces cease to
operate, i.e., compensate one another, and the general law deter¬
mining prices then also comes to apply to individual cases. The
market-price then corresponds even in its immediate form, and not
only as the average of market-price movements, to the price of
production, which is regulated by the immanent laws of the mode
of production itself. The same applies to wages. If supply and
demand coincide, they neutralise each other’s effect, and wages
equal the value of labour-power. But it is different with the interest
on money-capital. Competition does not, in this case, determine
the deviations from the rule. There is rather no law of division
except that enforced by competition, because, as we shall
later see, no such thing as a “natural ” rate of interest exists. By
the natural rate of interest people merely mean the rate fixed by
free competition. There are no “natural” limits for the rate of in¬
terest. Whenever competition does not merely determine the devia¬
tions and fluctuations, whenever, therefore, the neutralisation
of opposing forces puts a stop to any and all determination, the
thing to be determined becomes something arbitrary and lawless.
More on this in the next chapter.

In the case of interest-bearing capital everything appears super¬
ficial: the advance of capital as mere transfer from lender to borrow¬
er; the reflux of realised capital as mere transfer back, as a return
payment with interest, by borrower to lender. The same is true of
the fact, immanent in the capitalist mode of production, that the
rate of profit is not only determined by the relation of profit made
in one single turnover to advanced capital-value, but also by the
length of this period of turnover, hence determined as profit yield¬
ed by industrial capital within definite spans of time. In the case
of interest-bearing capital this likewise appears on the surface to
mean that a definite interest is paid to the lender for a definite
time span.

With his usual insight into the internal connection of things,
the romantic Adam Muller says (Elemente der Staatskunst, Berlin,
1809, Dritter Theil, S. 138): “In determining the prices of things,
time is not considered; while in determining interest, time is the
principal factor. ” He does not see how the time of production and
the time of circulation enter into the determination of commodity-
prices, and how this is just what determines the rate of profit for a

INTEREST-BEARING CAPITAL

357

given period of turnover of capital, whereas interest is determined
by precisely this determination of profit for a given period. His
sagacity here, as elsewhere, consists in observing the clouds of
dust on the surface and presumptuously declaring this dust to be
something mysterious and important.

CHAPTER XXII

DIVISION OF PROFIT. RATE OF INTEREST.

NATURAL RATE OF INTEREST

The subject of this chapter, like all theother phenomena of credit
we shall come across later on, cannot be analysed here in detail.
The competition between lenders and borrowers and the resultant
minor fluctuations of the money-market fall outside the scope of
our inquiry. The circuit described by the rate of interest during
the industrial cycle requires for its presentation the analysis of
this cycle itself, but this likewise cannot be given here. The same
applies to the greater or lesser approximate equalisation of the
rate of interest in the world-market. We are here concerned with
the independent form of interest-bearing capital and the individ¬
ualisation of interest, as distinct from profit.

Since interest is merely a part of profit paid, according to our
earlier assumption, by the industrial capitalist to the money-
capitalist, the maximum limit of interest is the profit itself, in which
case the portion pocketed by the productive capitalist would=0.
Aside from exceptional cases, in which interest might actually be
larger than profit, but then could not be paid out of the profit, one
might consider as the maximum limit of interest the total profit
minus the portion (to be subsequently analysed) which resolves
itself into wages of superintendence. The minimum limit of inter¬
est is altogether indeterminable. It may fall to any low. Yet in
that case there will always be counteracting influences to raise it
again above this relative minimum.

“The relation between the sum paid for the use of capital and the
capital expresses the rate of interest as measured in money.” “The
rate of interest depends 1) on the rate of profit; 2) on the propor¬
tion in which the entire profit is divided between the lender and
borrower.” (Economist, January 22, 1853.) “If that which men pay

RATE OF INTEREST NATURAL RATE OF INTEREST

359

as interest for the use of what they borrow, be a part of the profits
it is capable of producing, this interest must always be governed by
those profits.” (Massie, 1. c., p. 49.)

Let us first assume that there is a fixed relation between the
total profit and that part of it which has to be paid as interest to
the money-capitalist. It is then clear that the interest will rise or
fall with the total profit, and the latter is determined by the gener¬
al rate of profit and its fluctuations. For instance, if the average
rate of profit were=20% and the interest=V4 of the profit, the
rate of interest would=5%; if the average rate of profit were= 16%,
the rate of interest would=4%. With the rate of profit at 20%,
the rate of interest might rise to 8%, and the industrial capital¬
ist would still make the same profit as he would at a rate of profit =
=16% and a rate of interest=4%, namely 12%. Should interest
rise only to 6% or 7%, he would still keep a larger share of the
profit. If the interest amounted to a constant quota of the average
profit, it would follow that the higher the general rate of profit,
the greater the absolute difference between the total profit and the
interest, and the greater the portion of the total profit pocketed
by the productive capitalist, and vice versa. Take it that interest =
= 1/s of the average profit. One-fifth of 10 is 2; the difference be¬
tween total profit and interest=8. One-fifth of 20=4; difference=
=20 — 4=16; ‘/j of 25=5; difference=25— 5=20; V» of 30=6;
difference=30 — 6= 24; V, of 35=7; difference=35 — 7=28. The
different rates of interest of 4, 5, 6, 7% would here always repre¬
sent no more than V„ or 20% of the total profit. If the rates of
profit are different, therefore, different rates of interest may repre¬
sent the same aliquot parts of the total profit, or the same percent¬
age of the total profit. With such constant proportions of interest,
the industrial profit (the difference between the total profit and
the interest) would rise proportionately to the general rate of
profit, and conversely.

All other conditions taken as equal, i.e., assuming the propor¬
tion between interest and total profit to be more or less constant,
the functioning capitalist is able and willing to pay a higher or low¬
er interest directly proportional to the level of the rate of profit.®1
Since we have seen that the rate of profit is inversely proportional
to the development of capitalist production, it follows that the
higher or lower rate of interest in a country is in the same inverse
proportion to the degree of industrial development, at least in so

61 “The natural rate of interest is governed by the profits of trade to
particulars.” (Massie, 1. c., p. 51.)

360

DIVISION OF PROFIT

far as the difference in the rate of interest actually expresses the
difference in the rates of profit. It shall later develop that this
need not always be the case. In this sense it may be said that in¬
terest is regulated through profit, or, more precisely, the general
rate of profit. And this mode of regulating interest applies even to
its average.

In any event the average rate of profit is to be regarded as the
ultimate determinant of the maximum limit of interest.

The fact that interest is to be related to average profit will be
considered presently at greater length. Whenever a specified entity,
such as profit, is to be divided between two parties, the matter
naturally hinges above all on the magnitude of the entity which is
to be divided, and this, the magnitude of the profit, is determined
by its average rate. Suppose the general rate of profit, hence the
magnitude of profit, for a capital of given size, say, =100, is as¬
sumed as given. Then the variations of interest will obviously be
inversely proportional to those of the part of profit remaining in
the hands of the producing capitalist, working with a borrowed
capital. And the circumstances determining the amount of profit
to be distributed, of the value produced by unpaid labour, differ
widely from those which determine its distribution between these
two kinds of capitalists, and frequently produce entirely opposite
effects.*2

If we observe the cycles in which modern industry moves —
state of inactivity, mounting revival, prosperity, over-production,
crisis, stagnation, state of inactivity, etc., which fall beyond
the scope of our analysis — we shall find that a low rate of interest
generally corresponds to periods of prosperity or extra profit,
a rise in interest separates prosperity and its reverse, and a maxi¬
mum of interest up to a point of extreme usury corresponds to
the period of crisis.** The summer of 1843 ushered in a period of
remarkable prosperity; the rate of interest, still 4 ljt% in the

41 At this point the manuscript contains the following remark: “The
course of this chapter shows that it is preferable, before analysing the laws
of the distribution of profits, to ascertain first the way in which the division
of quantity becomes one of quality. To make a transition from the previous
chapter, we need but assume that interest is a certain indefinite portion of
profit. ”

** “In the first period, immediately after pressure, money is abundant
without speculation; in the second period, money is abundant and specula¬
tions abound; in the third period, speculation begins to decline and money
is in demand, in the fourth period, money is scarce and a pressure arrives."
(Gilbart, A Practical Treatite on Banking, 5th ed., Vol. I, London, 1849,
p. 149.)

RATE OF INTEREST. NATURAL RATE OF INTEREST

361

spring of 1842, fell to 2% in the spring and summer of 1843;*4 in
September it fell as low as 1V2% (Gilbart, I, p. 166); whereupon
it rose to 8% and higher during the crisis of 1847.

It is possible, however, for low interest to go along with stag¬
nation, and for moderately rising interest to go along with revived
activity.

The rate of interest reaches its peak during crises, when money
is borrowed at any cost to meet payments. Since a rise in interest
implies a fall in the price of securities, this simultaneously offers a
fine opportunity to people with available money-capital, to
acquire at ridiculously low prices such interest-bearing securities
as must, in the course of things, at least regain their average price
as soon as the rate of interest falls again.86

However, the rate of interest also has a tendency to fall quite
independently of the fluctuations in the rate of profit. And, indeed,
due to two main causes:

I. “Were we even to suppose that capital was never borrowed
with any view but to productive employment, I think it very pos¬
sible that interest might vary without any change in the rate of
gross profits. For, as a nation advances in the career of wealth, a
class of men springs up and increases more and more, who by the
labours of their ancestors find themselves in the possession of
funds sufficiently ample to afford a handsome maintenance from
the interest alone. Very many also who during youth and middle
age were actively engaged in business, retire in their latter dayS
to live quietly on the interest of the sums they have themselves
accumulated. This class, as well as the former, has a tendency
to increase with the increasing riches of the country, for those who
begin with a tolerable stock are likely to make an independence
sooner than they who commence with little. Thus it comes to pass,
that in old and rich countries, the amount of national capital be¬
longing to those who are unwilling to take the trouble of employ¬
ing it themselves, bears a larger proportion to the whole produc¬
tive stock of the society, than in newly settled and poorer districts.

*4 Tooke explains this “by the accumulation of surplus-capital necessar¬
ily accompanying the scarcity of profitable employment for it in previous
years, by the release of hoards, and by the revival of confidence in commer-
cial_^>rospects. ” (History of Prices from 1839 till 1847, London, 1848,

“ “An old customer of a banker was refused a loan upon a 8200,000
bond; when about to leave to make known his suspension of payment, he
was told there was no necessity for the step, under the circumstances the
banker would buy the bond at 8150,000.” ([H. Roy] The Theory of the
Exchanges. The Bank Charter Act of 1844, etc., London, 1869, p. 80.)

362

DIVISION OF PROFIT

How much more numerous in proportion to the population is the
class of rentiers... in England! As the class of rentiers increases,
so also does that of lenders of capital, for they are one and
the same.” (Ramsay, An Essay on the Distribution of Wealth ,

pp. 201-02.)

II. The development of the credit system and the attendant ever¬
growing control of industrialists and merchants over the money
savings of all classes of society that is effected through the bankers,
and the progressive concentration of these savings in amounts
which can serve as money-capital, must also depress the rate of
interest.. More about this later.

With reference to the determination of the rate of interest,
Ramsay says that it “depends partly upon the rate of gross profits,
partly on the proportion in which these are separated into profits
of capital and those of enterprise. This proportion again depends
upon the competition between the lenders of capital and the bor¬
rowers; which competition is influenced, though by no means
entirely regulated, by the rate of gross profit expected to be
realised.68 And the reason why competition is not exclusively
regulated by this cause, is, because on the one hand many borrow
without any view to productive employment; and, on the other,
because the proportion of the whole capital to be lent, varies with
the riches of the country independently of any change in gross
profits.” (Ramsay, 1. c,, pp. 206-07.)

To determine the average rate of interest we must 1) calculate
the average rate of interest during its variations in the major
industrial cycles; and 2) find the rate of interest for investments
which require long-term loans of capital.

The average rate of interest prevailing in a certain country — as
distinct from the continually fluctuating market rates — cannot
be determined by any law. In this sphere there is no such thing as
a natural rate of interest in the sense in which economists speak of
a natural rate of profit and a natural rate of wages. Massie has
rightly said in this respect (p. 49): “The only thing which any man
can be in doubt about on this occasion, is, what proportion of these
profits do of right belong to the borrower, and what to the lender;
and this there is no other method of determining than by the opin¬
ions of borrowers and lenders in general; for right and wrrong,

00 Since the rate of interest is on the whole determined by the average
rate of profit, inordinate swindling is often bound up with a low rate of
interest. For instance, the railway swindle in the summer of 1844. The rate
of interest of the Bank of England was not raised to 3% until 16th October,
1844.

RATE OF INTEREST. NATURAL RATE OF INTEREST

363

in this respect, are only what common consent makes so.” Equat¬
ing supply and demand — assuming the average rate of profit as
given — means nothing. Wherever else this formula is resorted to
(and this is then practically correct), it serves as a formula to
find the fundamental rule (the regulating limits or limiting mag¬
nitudes) which is independent of, and rather determines, compe¬
tition; notably as a formula for those who are held captive by the
practice of competition, and by its phenomena and the conceptions
arising out of them, to arrive at what is again but a superficial
idea of the inner connection of economic relations obtaining
within competition. It is a method to pass from the variations
that go with competition to the limits of these variations. This
is not the case with the average rate of interest. There is no good
reason why average conditions of competition, the balance be¬
tween lender and borrower, should give the lender an interest
rate of 3, 4, 5%, etc., or else a certain percentage of the gross
profits, say 20% or 50%, on his capital. Wherever it is compe¬
tition as such which determines anything, the determination
is accidental, purely empirical, and only pedantry or fantasy
would seek to represent this accident as a necessity.®7 Nothing
is more amusing in the reports of Parliament for 1857 and 1858
concerning bank legislation and commercial crises than to hear
of “the real rate produced ” as the directors of the Bank of England,
London bankers, country bankers, and professional theorists
chatter back and forth, never getting beyond such commonplaces
as that “the price paid for the use of loanable capital should vary

67 J. G. Opdyke, for instance, in his Treatise on Political Economy (New
York, 1851) makes a very unsuccessful attempt to explain the universality
of a 5% rate of interest by eternal laws. Mr. Karl Arnd is still more naive
in Die naturgemasse Volkswirtschaft gegenuber dem Monopoliengeist und dem
Kommunlsmus, etc., Hanau, 1845. It is stated there: “In the natural course
of goods production there is just one phenomenon, which, in the fully settled
countries, seems in some measure to regulate the rate of interest; this is the
proportion, in which the timber in European forests is augmented through
their annual growth. This new growth occurs quite independently of their
exchange-value, at the rate of 3 or 4 to 100.” (How queer that trees should
see to their new growth independently of their exchange- valuel) “Accord¬
ing to this a drop in the rate of interest below its present level in the richest
countries cannot be expected" (p. 124). (He means, because the new growth
of the trees is independent of their exchange-value, however much their
exchange-value may depend on their new growth.) This deserves to be called
“the primordial forest rate of interest. ” Its discoverer makes a further
laudable contribution in this work to “our science” as the “philosopher of
the dog tax." (Marx ironically calls K. Arnd the “philosopher of the dog
tax” because in a special paragraph in his book (§ 88, S. 420-21) he advocat¬
ed that tax. — Ed. ]

364

DIVISION OF PROFIT

wilh the supply of such capital,” that “a high rate and a low
profit cannot permanently exist,” and similar specious plati¬
tudes.68 Customs, juristic tradition, etc., have as much to do with
determining the average rate of interest as competition itself, in
so far as it exists not merely as an average, but rather as actual
magnitude. In many law disputes, where interest has to be cal¬
culated, an average rate of interest has to be assumed as the legal
rate. If we inquire further as to why the limits of a mean rate of
interest cannot be deduced from general laws, we find the answer
lies simply in the nature of interest. It is merely a part of the
average profit. The same capital appears in two roles — as loanable
capital in the lender’s hands and as industrial, or commercial,
capital in the hands of the functioning capitalist. But it func¬
tions just once, and produces profit just once. In the production
process itself the nature of capital as loanable capital plays no
role. How the two parties who have claim to it divide the profit
is in itself just as purely empirical a matter belonging to the
realm of accident as the distribution of percentage shares of a
common profit in a business partnership. Two entirely different
elements — labour-power and capital — act as determinants in the
division between surplus-value and wages, which division
essentially determines the rate of profit; these are functions of two
independent variables, which limit one another; and it is their
qualitative difference that is the source of the quantitative
division of the produced value. We shall see later that the same
occurs in the splitting of surplus-value into rent and profit.
Nothing of the kind occurs in the case of interest. Here the quali¬
tative differentiation as we shall presently see, proceeds rather from
the purely quantitative division of the same sum of surplus-value.

It follows from the aforesaid that there is no such thing as a
“natural” rate of interest. But if, unlike the general rate of profit,
there is on the one hand no general law to determine the limits
of the average interest, or average rate of interest as distinct
from the continually fluctuating market rates of interest, because
it is merely a question of dividing the gross profit between two
owners of capital under different title; on the other hand, the

•• The Bank of England raises and lowers the rate of its discount, always,
of course, with due consideration of the rate prevailing in the open market,
in accordance with imports and exports of gold. “By which gambling in
discounts, by anticipation of the alterations in the bank-rate, has now
become half the trade of the great heads of the money centre”— i.e., of
tho London money-market. ([H. Roy] The Theory o) the Exchanges, etc.,
p. 113.)

RATE OF INTEREST. NATURAL RATE OF INTEREST

365

rate of interest — be it the average or the market rate prevalent
in each particular case — appears as a uniform, definite and tan¬
gible magnitude in a quite different way from the general rate of
profit.68

The rate of interest is similarly related to the rate of profit as
the market-price of a commodity is to its value. In so far as the
rate of interest is determined by the rate of profit, this is always
the general rate of profit and not any specific rate of profit prevail¬
ing in some particular branch of industry, and still less any extra
profit which an individual capitalist may make in a particular
sphere of business.70 It is a fact, therefore, that the general rate
of profit appears as an empirical, given reality in the average
rate of interest, although the latter is not a pure or reliable
expression of the former.

It is indeed true that the rate of interest itself varies in accord¬
ance with the different classes of securities offered by borrowers,
and in accordance with the length of time for which the money
is borrowed; but it is uniform in each of these classes at a given
moment. This distinction, then, does not militate against a
fixed and uniform appearance of the rate of interest.71

18 “‘The price of commodities fluctuates' continually; they are all made
for different uses; the money serves for all purposes. The commodities, even
those of the same kind, differ according to quality; cash money is always
of the same value, or at least is assumed to be so. Thus it is that the price
of money, which we designate by the term interest, has a greater stability
and uniformity than that of any other thing.” (J. Steuart, Principles of
Political Economy , French translation, 1789, IV, p. 27.)

70 “This rule of dividing profits is not, however, to be applied particu¬
larly to every lender and borrower, but to lenders and borrowers in general...
remarkably great and small gains are the reward of skill and the want of
understanding, which lenders have nothing at all to do with; for as they
will not suffer by the one, they ought not to benefit by the other. What has
been said of particular men in the same business is applicable to particular
sorts of business; if the merchants and tradesmen employed in any one
branch of trade get more by what they borrow than tne common profits
made by other merchants and tradesmen of the same country, the extraordi¬
nary gain is theirs, though it required only common skill and understanding
to get it; and not the lenders’, who supplied them with money ... for the
lenders would not have lent their money to carry on any branch of trade
upon lower terms than would admit of paying so much as the common rate
of interest; and therefore they ought not to receive more than that, whatever
advantages may be made by their money.” (Massie, 1. c., pp. 50, 51.)

71 Bank-rate . 5%

Market rate of discount, 60 days' drafts . 3‘/»%

Ditto, 3 months’ . 3*/,%

Ditto, 6 months’ . 3%,%

Loans to bill-brokers, day to day . lto2%

366

DIVISION OF PROFIT

The average rate of interest appears in every country over fairly
long periods as a constant magnitude, because the general rate of
profit varies only at longer intervals — in spite of constant varia¬
tions in specific rates of profit, in which a change in one sphere is
offset by an opposite change in another. And its relative constancy
is revealed precisely in this more or less constant nature of the
average, or common, rate of interest.

As concerns the perpetually fluctuating market rate of interest,
however, it exists at any moment as a fixed magnitude, just as
the market-price of commodities, because in the money-market
all loanable capital continually faces functioning capital as an
aggregate mass, so that the relation between the supply of loanable
capital on one side, and the demand for it on the other, decides
the market level of interest at any given time. This is all the more
so, the more the development, and the attendant concentration,
of the credit system gives to loanable capital a general social
character and throws it all at once on the money-market. On the
other hand, the general rate of profit is never anything more than
a tendency, a movement to equalise specific rates of profit. The
competition between capitalists — which is itself this movement
toward equilibrium — consists here of their gradually withdraw¬
ing capital from spheres in which profit is for an appreciable
length of time below average, and gradually investing capital
into spheres in which profit is above average. Or it may also
consist in additional capital distributing itself gradually and in
varying proportions among these spheres. It is continual variation
in supply and withdrawal of capital in regard to these different
spheres, and never a simultaneous mass effect, as in the deter¬
mination of the rate of interest.

We have seen that interest-bearing capital, although a category
which differs absolutely from a commodity, becomes a commodity
sui generis, so that interest becomes its price, fixed at all times
by supply and demand like the market-price of an ordinary com¬
modity. The market rate of interest, while fluctuating contin¬
ually, appears therefore at any given moment just as constantly

Ditto, for one week . 3%

Last rate for fortnight, loans to stockbrokers .... 4*/«to5%

Deposit allowance (banks) . 3l/j%

Ditto (discount houses) . 3to3V«%

How largo this difference may be for one and the same day is shown in the
preceding figures of the rate of interest of the London money-market on De¬
cember 9, 1889, taken from the City article of the Daily News of December 10.
The minimum is 1%, the maximum 5%. [F. E. )

HATE OF INTEREST. NATURAL RATE OF INTEREST

367

fixed and uniform as the market-price of a commodity prevailing
in each individual case. Money-capitalists supply this commodity,
and functioning capitalists buy it, creating the demand for it.
This does not occur when equalisation creates a general rate of
profit. If prices of commodities in one sphere are below or above
the price of production (wherein we deliberately leave aside the
fluctuations attendant upon the various phases of the industrial
cycle in each and every enterprise) the balance is effected through
the expansion or curtailment of production, i.e., the expansion
or curtailment of the masses of commodities thrown on the market
by industrial capitals — caused by inflow or outflow of capital
to and from individual spheres of production. It is by this equali¬
sation of the average market-prices of commodities to prices of
production that deviations of specific rates of profit from the
general, or average, rate of profit are corrected. It cannot be that in
this process industrial or mercantile capital as such should ever
assume the appearance of commodities vis-a-vis the buyer, as in
the case of interest-bearing capital. If perceptible at all, this
process is so only in the fluctuations and equalisations of market-
prices of commodities to prices of production, not as a direct
fixation of the average profit. The general rate of profit is, indeed,
determined 1) by the surplus-value produced by the total capital,
2) by the proportion of this surplus-value to the value of the
total capital, and 3) by competition, but only in so far as this
is a movement whereby capitals invested in particular production
spheres seek to draw equal dividends out of this surplus-value
in proportion to their relative magnitudes. The general rate of
profit, therefore, derives actually from causes far different and
far more complicated than the market rate of interest, which is
directly and immediately determined by the proportion between
supply and demand, and hence is not as tangible and obvious
a fact as the rate of interest. The individual rates of profit in
various spheres of production are themselves more or less uncer¬
tain; but in so far as they appear, it is not their uniformity but
their differences which are perceptible. The general rate of profit,
however, appears only as the lowest limit of profit, not as an
empirical, directly visible form of the actual rate of profit.

In emphasising this difference between the rate of interest and
the rate of profit, we still omit the following two points, which
favour consolidation of the rate of interest: 1) the historical pre-
existence of interest-bearing capital and the existence of a tra¬
ditional general rate of interest; 2) the far greater direct influence
exerted by the world-market on establishing the rate of interest,

368

DIVISION OK PROFIT

irrespective of the economic conditions of a country, as compared
with its influence on the rate of profit.

The average profit does not obtain as a directly established fact,
but rather is to be determined as an end result of the equalisation
of opposite fluctuations. Not so with the rate of interest. It is a
thing fixed daily in its general, at least local, validity — a thing
which serves industrial and mercantile capitals even as a prereq¬
uisite and a factor in the calculation of their operation. It becomes
the general endowment of every sum of money of £100 to yield
£2, 3, 4, 5. Meteorological reports never denote the readings of
the barometer and thermometer with greater accuracy than stock
exchange reports denote the rate of interest, not for one or another
capital, but for capital in the money-market, i.e., for loanable
capital generally.

In the money-market only lenders and borrowers face one
another. The commodity has the same form — money. All specific
forms of capital in accordance with its investment in particular
spheres of production or circulation are here obliterated. It exists
in the undifferentiated homogeneous form of independent value —
money. The competition of individual spheres does not affect it.
They are all thrown together as borrowers of money, and capital
confronts them all in a form, in which it is as yet indifferent to
the prospective manner of its investment. It obtains most emphat¬
ically in the supply and demand of capital as essentially the
common capital of a class — something industrial capital does only
in the movement and competition of capital between the various
individual spheres. On the other hand, money-capital in the
money-market actually possesses the form, in which, indifferent to
its specific employment, it is divided as a common element among
the various spheres, among the capitalist class, as the require¬
ments of production in each individual sphere may dictate.
Moreover, with the development of large-scale industry money-
capital, so far as it appears on the market, is not represented by
some individual capitalist, not the owner of one or another
fraction of the capital in the market, but assumes the nature of a
concentrated, organised mass, which, quite different from actual
production, is subject to the control of bankers, i.e., the represent¬
atives of social capital. So that, as concerns the form of demand,
loanable capital is confronted by the class as a whole, whereas
in the province of supply it is loanable capital which obtains en
masse.

These are some of the reasons why the general rate of profit ap¬
pears blurred and hazy alongside the definite interest rate, which

RATE OF INTEREST. NATURAL RATE OP INTEREST

369

may fluctuate in magnitude, but always confronts borrowers as
•liven and fixed because it varies uniformly for all of them. Just
as variations in the value of money do not prevent it from having
the same value vis-a-vis all commodities. Just as the daily fluc¬
tuations in market-prices of commodities do not prevent them
from being daily reported in the papers. So the rate of interest is
regularly reported as “the price of money. ” It is so, because capital
itself is being offered here in the form of money as a commodity.
The fixation of its price is thus a fixation of its market-price, as
with all other commodities. The rate of interest, therefore, always
appears as the general rate of interest, as so much money for so
much money, as a definite quantity. The rate of profit, on the other
hand, may vary even within the same sphere for commodities
with the same price, depending on different conditions under
which different capitals produce the same commodity, because
the rate of profit of an individual capital is not determined by the
market-price of a commodity, but rather by the difference between
market-price and cost-price. And these different rates of profit can
strike a balance — first within the same sphere and then between
different spheres — only through continual fluctuation.

(Note for later elaboration.) A specific form of credit: It is
known that when money serves as a means of payment instead of
a means of purchase, the commodity is alienated, but its value is
realised only later. If payment is not madeuntil after the commod¬
ity has again been sold, this sale does not appear as the result
of the purchase; rather it is through this sale that the purchase is
realised. In other words, the sale becomes a means of purchase.
Secondly: titles to debts, bills of exchange, etc., become means
of payment for the creditor. Thirdly: the compensation of titles
to debts replaces money.

CHAPTER XXIII

INTEREST AND PROFIT OF ENTERPRISE

Interest, as we have seen in the two preceding chapters, appears
originally, is originally, and remains in fact merely a portion of
the profit, i.e., of the surplus-value, which the functioning capi¬
talist, industrialist or merchant has to pay to the owner and lend¬
er of money-capital whenever he uses loaned capital instead of
his own. If he employs only his own capital, no such division of
profit takes place; the latter is then entirely his. Indeed, as long
as the owners of the capital employ it on their own in the repro¬
duction process, they do not compete in determining the rate of
interest. This alone shows that the category of interest —impos¬
sible without determining the rate of interest — is alien to the
movements of industrial capital as such.

“The rate of interest may be defined to be that proportional
sum which the lender is content to receive, and the borrower
to pay, annually, or for any longer or shorter period, for the use
of a certain amount of moneyed capital.... When the owner of a
capital employs it actively in reproduction, he does not come
under the head of those capitalists, the proportion of whom, to
the number of borrowers, determines the rate of interest.” (Th.
Tooke, History of Prices , London, 1838, II, pp. 355-56.) It is
indeed only the separation of capitalists into money-capitalists
and industrial capitalists that transforms a portion of the profit
into interest, that generally creates the category of interest; and
it is only the competition between these two kinds of capitalists
which creates the rate of interest.

As long as capital functions in the process of reproduction —
assuming that it even belongs to the industrial capitalist and he
has no need of paying it back to a lender — the capitalist, as a

INTEREST AND PROFIT OF ENTERPRISE

371

private individual, does not have at his disposal this capital it¬
self, but only the profit, which he may spend as revenue. As long
as his capital functions as capital, it belongs to the process of re¬
production, is tied up in it. He is, indeed, its owner, but this
ownership does not enable him to dispose of it in any other way,
so long as he uses it as capital for the exploitation of labour. The
same is true of the money-capitalist. So long as his capital is loaned
out and thereby serves as money-capital, it brings him interest,
a portion of the profit, but he cannot dispose of the principal.
This is evident whenever he loans oat his capital for, say, a year,
or more, and receives interest at certain stipulated times without
the return of his principal. But even the return of the principal
makes no difference here. If he gets it back, he must always loan
it out again, so long as it is to function for him as capital — here
as money-capital. As long as he keeps it in his own hands, it does
not collect interest and does not act as capital; and as long as it
does gather interest and serve as capital, it is out of his hands.
Hence the possibility of loaning out capital for all time. The
following remarks by Tooke directed against Bosanquet are,
therefore, entirely wrong. He quotes Bosanquet ( Metallic , Paper
and Credit Currency, London, 1842, p. 73): “Were the rate of
interest reduced as low as 1%, capital borrowed would be placed
nearly on a par with capital possessed.” To this Tooke adds the
following marginal note: “That a capital borrowed at that, or
even a lower rate, should be considered nearly on a par with
capital possessed, is a proposition so strange as hardly to warrant
serious notice were it not advanced by a writer so intelligent,
and, on some points of the subject, so well informed. Has he over¬
looked the circumstance, or does he consider it of little conse¬
quence, that there must, by the supposition, be a condition of
repayment?” (Th. Tooke, An Inquiry into the Currency Principle,
2nd ed., London, 1844, p. 80.) If interest were=0, the industrial
capitalist operating on borrowed capital would stand on a par
with a capitalist using his own capital. Both would pocket the
same average profit, and capital, whether borrowed or owned,
serves as capital only as long as it produces profit. The condition
of return payment would alter nothing. The nearer the rate of
interest approaches zero, falling, for instance, to 1%, the nearer
borrowed capital is to being on a par with owner’s capital. So
long as money-capital is to exist as money-capital, it must
always be loaned out, and indeed at the prevailing rate of interest,
say of 1%, and always to the same class of industrial and com¬
mercial capitalists. So long as these function as capitalists, the

372

DIVISION OF PROFIT

sole difference between the one working with borrowed capital
and the other with his own is that the former must pay interest
and the latter must not; the one pockets the entire profit p, and
the other p— i, the profit minus the interest. The nearer interest
approaches zero, the nearer p — i approaches p, and hence the
nearer the two capitals are to being on a par. The one must pay
back the capital and borrow anew; yet the other must likewise
advance it again and -again to the production process, so long
as his capital is to function, and cannot dispose of it freely, in¬
dependent of this process. The sole remaining difference between
the two is the obvious difference that one is the owner of his
capital, and the other is not.

The question which now arises is this. How does this purely
quantitative division of profit into net profit and interest turn
into a qualitative one? In other words, how is it that a capitalist
who employs solely his own, not borrowed capital, classifies a
portion of his gross profit under the specific category of interest
and as such calculates it separately? And, furthermore, how is it
that all capital, whether borrowed or not, is differentiated as
interest-bearing capital from itself as capital producing a net profit?

It is understood that not every accidental quantitative division
of profit turns in this manner into a qualitative one. For instance,
some industrial capitalists join hands to operate a business and
then divide the profit among themselves in accordance with some
legal agreement. Others do their business, each on his own, without
any partners. These last do not calculate their profit under two
heads — one part as individual profit, and the other as company
profit for their non-existent partners. In this case the quantita¬
tive division therefore does not become a qualitative one. This
occurs whenever ownership happens to be vested in several jurid¬
ical persons. It does not occur whenever this is not the case.

In order to answer this question, we must dwell somewhat
longer on the actual point of departure in the formation of interest;
that is, we must proceed from the assumption that the money-
capitalist and industrial capitalist really confront one another
not just as legally different persons, but as persons playing
entirely different roles in the reproduction process, or as persons
in whose hands the same capital really performs a two-fold and
wholly different movement. The one merely loans it, the other
employs it productively.

For the productive capitalist who works on borrowed capital,
the gross profit falls into two parts — the interest, which he is to
pay the lender, and the surplus over and above the interest, which

INTEREST AND PROFIT OF ENTERPRISE

373

makes up his own share of the profit. If the general rate of profit is
given, this latter portion is determined by the rate of interest;
and if the rate of interest is given, then by the general rate of
profit. And furthermore: however the gross profit, the actual
value of the total profit, may diverge in each individual case
from the average profit, the portion belonging to the functioning
capitalist is determined by the interest, since this is fixed by the
general rate of interest (leaving aside any special legal stipula¬
tions) and assumed to be given beforehand, before the process of
production begins, hence before its result, the gross profit, is
achieved. We have seen that the actual specific product of capital
is surplus-value, or, more precisely, profit. But for the capitalist
working on borrowed capital it is not profit, but profit minus
interest, that portion of profit which remains to him after paying
interest. This portion of the profit, therefore, necessarily appears
to him to be the product of a capital as long as it is operative; and
this it is, as far as he is concerned, because he represents capital
only as functioning capital. He is its personification as long as
it functions, and it functions as long as it is profitably invested in
industry or commerce and such operations are undertaken with it
through its employer as are prescribed by the branch of industry
concerned. As distinct from interest, which he has to pay to the
lender out of the gross profit, the portion of profit which falls to
his share necessarily assumes the form of industrial or commer¬
cial profit, or, to use a German term embracing both, the form of
U nternehmergewinn (profit of enterprise). If the gross profit equals
the average profit, the size of the profit of enterprise is determined
exclusively by the rate of interest. If the gross profit deviates
from the average profit, its difference from the average profit
(after interest is deducted from both) is determined by all the
circumstances which cause a temporary deviation, be it of the
rate of profit in any particular sphere from the general rate of
profit, or the profit of some individual capitalist in a certain
sphere from the average profit of this sphere. We have seen how¬
ever that the rate of profit within the production process itself
does not depend on surplus-value alone, but also on many other
circumstances, such as purchase prices of means of production,
methods more productive than the average, on savings of constant
capital, etc. Arid aside from the price of production, it depends
on special circumstances, and in every single business transaction
on the greater or lesser shrewdness and industry of the capitalist,
whether, and to what extent, he buys or sells above or below
the price of production and thus appropriates a greater or smaller

374

DIVISION OF PROFIT

portion of the total surplus-value in the process of circulation.
In any case, the quantitative division of the gross profit turns
here into a qualitative one, and all the more so because the quan¬
titative division itself depends on what is to be divided, the
manner in which the active capitalist manages his capital, and
what gross profit it yields to him as a functioning capital, i.e.,
in consequence of his functions as an active capitalist. The func¬
tioning capitalist is here assumed as a non-owner of capital.
Ownership of the capital is represented in relation to him by the
money-capitalist, the lender. The interest he pays to the latter
thus appears as that portion of gross profit which is due to the own¬
ership of capital as such. As distinct from this, that portion of
profit which falls to the active capitalist appears now as profit
of enterprise, deriving solely from the operations, or functions,
which he performs with the capital in the process of reproduction,
hence particularly those functions which he performs as entre¬
preneur in industry or commerce. In relation to him interest
appears therefore as the mere fruit of owning capital, of capital
as such abstracted from the reproduction process of capital, inas¬
much as it does not “work,” does not function; while profit of
enterprise appears to him as the exclusive fruit of the functions
which he performs with the capital, as the fruit of the movement
and performance of capital, of a performance which appears to
him as his own activity, as opposed to the inactivity, the non¬
participation of the money-capitalist in the production process.
This qualitative distinction between the two portions of gross
profit that interest is the fruit of capital as such, of the ownership
of capital irrespective of the production process, and that profit
of enterprise is the fruit of performing capital, of capital function¬
ing in the production process, and hence of the active role played
by the employer of the capital in the reproduction process — this
qualitative distinction is by no means merely a subjective notion
of the money-capitalist, on the one hand, and the industrial
capitalist, on the other. It rests upon an objective fact, for interest
flows to the money-capitalist, to the lender, who is the mere
owner of capital, hence represents only ownership of capital before
the production process and outside of it; while the profit of
enterprise flows to the functioning capitalist alone, who is non-
owner of the capital.

The merely quantitative division of the gross profit between
two different persons who both have different legal claims to the
same capital, and hence to the profit produced by it, thus turns
into a qualitative division for both the industrial capitalist in so

INTEREST AND PROFIT OF ENTERPRISE

375

far as he is operating on borrowed capital, and for the money-
capitalist, in so far as he does not himself apply his capital. One
portion of the profit appears now as fruit due as such to capital
in one form, as interest; the other portion appears as a specific
fruit of capital in an opposite form, and thus as profit of enter¬
prise. One appears exclusively as the fruit of operating with the
capital, the fruit of performing capital, or of the functions per¬
formed by the active capitalist. And this ossification and individ¬
ualisation of the two parts of the gross profit in respect to one
another, as though they originated from two essentially different
sources, now takes firm shape for the entire capitalist class and
the total capital. And, indeed, regardless of whether the capital
employed by the active capitalist is borrowed or not, and wheth¬
er the capital belonging to the money-capitalist is employed
by himself or not. The profit of every capital, and consequently
also the average profit established by the equalisation of capitals,
splits, or is separated, into two qualitatively different, mutually
independent and separately individualised parts, to wit — in¬
terest and profit of enterprise — both of which are determined by
separate laws. The capitalist operating on his own capital, like
the one operating on borrowed capital, divides the gross profit
into interest due to himself as owner, as his own lender, and into
profit of enterprise due to him as to an active capitalist perform¬
ing his function. As concerns this division, therefore, as a quali¬
tative one, it is immaterial whether the capitalist really has to
share with another, or not. The employer of capital, even when
working with his own capital, splits into two personalities — the
owner of capital and the employer of capital; with reference
to the categories of profit which it yields, his capital also
splits into capital-property, capital outside the production process,
and yielding interest of itself, and capital in the production
process which yields a profit of enterprise through its func¬
tion.

Interest, therefore, becomes firmly established in a way that it
no longer appears as a division of gross profit of indifference to
production, which occurs occasionally when the industrial capital¬
ist happens to operate with someone else’s capital. His profit
splits into interest and profit of enterprise even when he operates
on his own capital. A merely quantitative division thus turns
into a qualitative one. It occurs regardless of the fortuitous cir¬
cumstance whether the industrial capitalist is, or is not, the own¬
er of his capital. It is not only a matter of different quotas of profit
assigned to different persons, but two different categories of profit

13’

376

DIVISION OF PROFIT

which are differently related to the capital, hence related to
different aspects of the capital.

Now that this division of gross profit into interest and profit
of enterprise has become a qualitative one, it is easy to discover
the reasons why it acquires this character of a qualitative division
for the total capital and the entire class of capitalists.

Firstly, this follows from the simple empirical circumstance
that the majority of industrial capitalists, even if in different
numerical proportions, work with their own and with borrowed
capital, and that at different times the proportion between one’s
own and borrowed capital changes.

Secondly, the transformation of a portion of the gross profit into
the form of interest converts its other portion into profit of enter¬
prise. The latter is, indeed, but the opposite form assumed by the
excess of gross profit over interest as soon as this exists as an
independent category. The entire analysis of the problem how gross
profit is differentiated into interest and profit of enterprise,
resolves itself into the inquiry of how a portion of the gross profit
becomes universally ossified and individualised as interest. Yet
historically interest-bearing capital existed as a completed tra¬
ditional form, and hence interest as a completed sub-division of
surplus-value produced by capital, long before the capitalist mode
of production and its attendant conceptions of capital and profit.
Thus it is that to the popular mind money-capital, or interest-
bearing capital, is still capital as such, as capital par excellence.
Thus it is, on the other hand, that up to the time of Massie the
notion prevailed that it is money as such which is paid in interest.
The fact that loaned capital yields interest whether actually em¬
ployed as capital or not — even when borrowed only for consump¬
tion — lends strength to the idea that this form of capital exists
independently. The best proof of the independence which interest
possessed during the early periods of the capitalist mode of pro¬
duction in reference to profit, and which interest-bearing capital
possessed in reference to industrial capital, is that it was dis¬
covered (by Massie* and after him by Hume**) as late as the
middle of the 18th century, that interest is but a portion of the
gross profit, and that such a discovery was at all necessary.

Thirdly, whether the industrial capitalist operates on his own or
on borrowed capital does not alter the fact that the class of money-

* [J. Massie] An Ettay on the Governing Carnet of the Natural Rate of
Interest, London, 1750. — Ed.

•* D. Hume, “On Interest.” In: “Essays and Treatises on Several Sub¬
jects,” Vol. I, London, 1764. —

INTEREST AND PROFIT OF ENTERPRISE

377

capitalists confronts him as a special kind of capitalists, money-
capital as an independent kind of capital, and interest as an inde¬
pendent form of surplus-value peculiar to this specific capital.

Qualitatively speaking, interest is surplus-value yielded by the
mere ownership of capital; it is yielded by capital as such, even
though its owner remains outside the reproduction process. Hence
it is surplus-value realised by capital outside of its process.

Quantitatively speaking, that portion of profit which forms
interest does not seem to be related to industrial or commercial
capital as such, but to money-capital, and the rate of this portion
of surplus-value, the rate of interest, reinforces this relation.
Because, in the first place, the rate of interest is independently
determined despite its dependence upon the general rate of profit,
and, in the second place, like the market-price of commodities,
it appears in contrast to the intangible rate of profit as a fixed,
uniform, tangible and always given relation for all its variations.
If all capital were in the hands of the industrial capitalists there
would be no such thing as interest and rate of interest. The inde¬
pendent form assumed by the quantitative division of gross profit
creates the qualitative one. If the industrial capitalist were to
compare himself with the money-capitalist, it would be his profit
of enterprise alone, the excess of his gross profit over the average
interest — the latter appearing to be empirically given by virtue
of the rate of interest — that would distinguish him from the other
person. If, on the other hand, he compares himself with the
industrial capitalist working with his own, instead of borrowed,
capital, the latter differs from him only as a money-capitalist
in pocketing the interest instead of paying it to someone else. The
portion of gross profit distinguished from interest appears to him
in either case as profit of enterprise, and interest itself as a sur¬
plus-value yielded by capital as such, which it would yield even
if not applied productively.

This is correct in the practical sense for the individual capitalist.
He has the choice of making use of his capital by lending it out as
interest-bearing capital, or of expanding its value on his own by
using it as productive capital, regardless of whether it exists as
money-capital from the very first, or whether it still has to be con¬
verted into money-capital. But to apply it to the total capital
of society, as some vulgar economists do, and to go so far as to
define it as the cause of profit, is, of course, preposterous. The idea
of converting all the capital into money-capital, without there
being people who buy and put to use means of production, which
make up the total .capital outside of a relatively small portion of

378

DIVISION OF PROFIT

it existing in money, is, of course, sheer nonsense. It would be
still more absurd to presume that capital would yield interest on.
the basis of capitalist production without performing any produc¬
tive function, i.e., without creating surplus-value, of which
interest is just a part; that the capitalist mode of production
would run its course without capitalist production. If an unto-
wardly large section of capitalists were to convert their capital
into money-capital, the result would be a frightful depreciation
of money-capital and a frightful fall in the rate of interest; many
would at once face the impossibility of living on their interest,
and would hence be compelled to reconvert into industrial capi¬
talists. But we repeat that it is a fact for the individual capitalist.
For this reason, even when operating with his own capital, he
necessarily considers the part of his average profit which equals
the average interest as fruit of his capital as such, set apart from
the process of production; and as distinct from this portion singled
out as interest, he considers the surplus of the gross profit as mere
profit of enterprise.

Fourthly , [A blank in the manuscript].

We have seen, therefore, that the portion of profit which the
functioning capitalist has to pay to the owner of borrowed capi¬
tal is transformed into an independent form for a portion of the
profit, which all capital as such, whether borrowed or not, yields
under the name of interest. How large this portion is depends on
the average rate of interest. Its origin is only still revealed in the
fact that the functioning capitalist, when owner of his capital,
does not compete — at least not actively — in determining the
interest rate. The purely quantitative division of the profit be¬
tween two persons who have different legal titles to it has turned
into a qualitative division, which seems to spring from the very
nature of capital and profit. Because, as we have seen, as soon as
a portion of profit universally assumes the form of interest, the
difference between average profit and interest, or the portion of
profit over and above the interest, assumes a form opposite to
interest — the form of profit of enterprise. These two forms, in¬
terest and profit of enterprise, exist only as opposites. Hence,
they are not related to surplus-value, of which they are but parts
placed under different categories, heads or names, but rather
to one another. It is because one portion of profit turns into in¬
terest, that the other appears as profit of enterprise.

By profit we here always mean average profit, since variations
do not concern us in this analysis, be they of individual profits
or of profits in different spheres — hence variations caused by the

INTEREST AND PROFIT OF ENTERPRISE

379

competitive struggle and other circumstances affecting the distri¬
bution of the average profit, or surplus-value. This applies gener¬
ally to this entire inquiry.

Interest is then net profit, as Ramsay calls it, which the owner¬
ship of capital yields as such, either simply to the lender, who
remains outside the reproduction process, or to the owner who
employs his capital productively. But in the latter’s case, too,
capital yields this net profit to him not in his capacity of produc¬
tive capitalist, but of money-capitalist, of lender of his own cap¬
ital as interest-bearing capital to himself as to a functioning cap¬
italist. Just as the conversion of money, and of value in general,
into capital is the constant result of capitalist production, so is
its existence as capital its constant precondition. By its ability
to be transformed into means of production it continually com¬
mands unpaid labour and thereby transforms the processes of pro¬
duction and circulation of commodities into the production of
surplus-value for its owner. Interest is, therefore, the expression
of the fact that value in general — materialised labour in its
general social form — value which assumes the form of means
of production in the actual process of production, confronts liv¬
ing labour-power as an independent power, and is a means of
appropriating unpaid labour; and that it is such a power be¬
cause it confronts the labourer as the property of another. But
on the other hand, this antithesis to wage-labour is obliter¬
ated ,in the form of interest, because interest-bearing capital as
such has not wage-labour, but productive capital for its opposite.
The lending capitalist as such faces the capitalist performing
his actual function in the process of reproduction, not the wage¬
worker, who, precisely under capitalist production, is expropri¬
ated of the means of production. Interest-bearing capital is capital
as property as distinct from capital as a junction. But so long as
capital does not perform its function, it does not exploit labourers
and does not come into opposition to labour.

On the other hand, profit of enterprise is not related as an op¬
posite to wage-labour, but only to interest.

Firstly, assuming the average profit to be given, the rate of the
profit of enterprise is not determined by wages, but by the rate
of interest. It is high or low in inverse proportion to it.”

Secondly, the functioning capitalist derives his claim to profits

n “The profits of enterprise depend upon the net profits of capital, not
the latter upon the former. ” (Ramsay, Euay on the Distribution of Wealth,
p. 214. For Ramsay net profits always mean interest.)

380

DIVISION OK PROFIT

of enterprise, hence the profit of enterprise itself, not from his
ownership of capital, hut from the function of capital, as distinct
from the definite form in which it is only inert property. This
stands out as an immediately apparent contrast whenever he oper¬
ates with borrowed capital, and interest and profit of enterprise
therefore go to different persons. The profit of enterprise springs
from the function of capital in the reproduction process, hence as
a result of the operations, the acts by which the functioning
capitalist promotes this function of industrial and commercial
capital. But to represent functioning capital is not a sinecure, like
representing interest-bearing capital. On the basis of capitalist
production, the capitalist directs the process of production and
circulation. Exploiting productive labour entails exertion, wheth¬
er he exploits it himself or has it exploited by someone else
on his behalf. Therefore, his profit of enterprise appears to him
as distinct from interest, as independent of the ownership of capi¬
tal, but rather as the result of his function as a non-proprietor —
a labourer.

He necessarily conceives the idea for this reason that his profit
of enterprise, far from being counterposed to wage-labour and far
from being the unpaid labour of others, is itself rather a wage
or wages of superintendence of labour, higher than a common
labourer’s, 1) because the work is far more complicated, and
2) because he pays them to himself. Tho fact that his function as a
capitalist consists in creating surplus-value, i.e., unpaid labour,
and creating it under the most economical conditions, is entirely
lost sight of in the contrast that interest falls to the share of the
capitalist even when he does not perform the function of a capital¬
ist and is merely the owner of capital; and that, on the other hand,
profit of enterprise does fall to the share of the functioning capi¬
talist even when he is not the owner of the capital on which he
operates. He forgets, due to the antithetical form of the two parts
into which profit, hence surplus-value, is divided, that both are
merely parts of the surplus-value, and that this division alters
nothing in the nature, origin, and way of existence of surplus-value.

In the process of reproduction the functioning capitalist repre¬
sents capital as the property of another vis-4-vis the wage-labour¬
ers, and the money-capitalist, represented by the functioning
capitalist, takes a hand in exploiting labour. The fact that the
investing capitalist can perform his function of making the
labourers work for him, or of employing means of production as
capital, only as the personification of the means of production
vis-6-vis the labourers, is forgotten in the contradiction between

INTEREST AND PROFIT OF ENTERPRISE

381

the function of capital in the reproduction process and the mere
ownership of capital outside of the reproduction process.

In fact, the form of interest and profit of enterprise assumed
by the two parts of profit, i.e., of surplus-value, expresses no
relation to labour, because this relation exists only between
labour and profit, or rather the surplus-value as a sum, a whole,
the unity of these two parts. The proportion in which the profit
is divided, and the different legal titles by which this division
is sanctioned, are based on the assumption that profit is already
in existence. If, therefore, the capitalist is the owner of the capi¬
tal on which he operates, he pockets the whole profit, or surplus-
value. It is absolutely immaterial to the labourer whether the cap¬
italist does this, or whether he has to pay a part of it to a third
person as its legal proprietor. The reasons for dividing the profit
among two kinds of capitalists thus turn imperceptibly into
the reasons for the existence of the profit, the surplus-value, that
is to be divided, and which capital as such derives from the repro¬
duction process regardless of any subsequent division. Since in¬
terest is opposed to profit of enterprise, and profit of enterprise
to interest, and since they are both counterposed to one another,
but not to labour, it follows that profit of enterprise plus interest,
i.e., profit, and further surplus-value, are derived — from what?
From the antithetical form of its two parts! But profit is produced
before its division is undertaken, and before there can be any
thought of it.

Interest-bearing capital remains as such only so long as the
loaned money is actually converted into capital and a surplus is
produced with it, of which interest is a part. But this does not
rule out that drawing interest, regardless of the process of pro¬
duction, is its organic property. So does labour-power preserve its
property of producing value only so long as it is employed and ma¬
terialised in the labour-process; yet this does not argue against
the fact that it is potentially, as a power, an activity which creates
value, and that as such it does not spring from the process of pro¬
duction, but rather antecedes it. It is bought as such a capacity
for creating value. One might also buy it without setting it to
work productively; for purely personal ends, for instance, for per¬
sonal services, etc. The same applies to capital. It is the borrow¬
er’s affair whether he employs it as capital, hence actually sets
in motion its inherent property of producing surplus-value. What
he pays for, is in either case the potential surplus-value inherently
contained in capital as a commodity.

382

DIVISION OF PROFIT

Let us now consider profit of enterprise in greater detail.

Since the specific social attribute of capital under capitalist
production — that of being property commanding the labour-
power of another — becomes fixed, so that interest appears as a
part of surplus-value produced by capital in this interrelation,
the other part of surplus-value — profit of enterprise — must nec¬
essarily appear as coming not from capital as such, but from
the process of production, separated from its specific social attri¬
bute, whose distinct mode of existence is already expressed by the
term interest on capital. But the process of production, separated
from capital, is simply a labour-process. Therefore, the industrial
capitalist, as distinct from the owner of capital, does not appear
as operating capital, but rather as a functionary irrespective of
capital, or, as a simple agent of the labour-process in general, as a
labourer, and indeed as a wage-labourer.

Interest as such expresses precisely the existence of the condi¬
tions of labour as capital, in their social antithesis to labour, and
in their transformation into personal power vis-a-vis and over
labour. It represents the ownership of capital as a means of appro¬
priating the products of the labour of others. But it represents this
characteristic of capital as something which belongs to it outside
the production process and by no means is the result of the specif¬
ically capitalist attribute of this production process itself.
Interest represents this characteristic not as directly counterposed
to labour, but rather as unrelated to labour, and simply as a
relationship of one capitalist to another. Hence, as an attribute
outside of and irrelevant to the relation of capital to labour. In
interest, therefore, in that specific form of profit in which the anti¬
thetical character of capital assumes an independent form, this
is done in such a way that the antithesis is completely obliterated
and abstracted. Interest is a relationship between two capitalists,
not between capitalist and labourer.

On the other hand, this form of interest lends the other portion
of profit the qualitative form of profit of enterprise, and further
of wages of superintendence. The specific functions which the capi¬
talist as such has to perform, and which fall to him as distinct
from and opposed to the labourer, are presented as mere functions
of labour. He creates surplus-value not because he works as a
capitalist , but because he also works, regardless of his capacity
of capitalist. This portion of surplus-value is thus no longer sur¬
plus-value, but its opposite, an equivalent for labour performed.
Due to the alienated character of capital, its antithesis to labour,
being relegated to a place outside the actual process of exploits-

INTEREST AND PROFIT OF ENTERPRISE

383

tion, namely to the interest-bearing capital, this process of
exploitation itself appears as a simple labour-process in which the
functioning capitalist merely performs a different kind of labour
than the labourer. So that the labour of exploiting and the exploit¬
ed labour both appear identical as labour. The labour of exploit¬
ing is just as much labour as exploited labour. The social form
of capital falls to interest, but expressed in a neutral and indif¬
ferent form. The economic function of capital falls to profit of
enterprise, but abstracted from the specific capitalist character
of this function.

The same thing passes through the mind of the capitalist in this
case as in the case of the reasons indicated in Part II of this book
for compensation in the equalisation to average profit. These
reasons for compensation which enter the distribution of surplus-
value as determinants are distorted in a capitalist’s mind to appear
as bases of origin and the (subjective) justifications of profit itself.

The conception of profit of enterprise as the wages of supervis¬
ing labour, arising from the antithesis of profit of enterprise to
interest, is further strengthened by the fact that a portion of profit
may, indeed, be separated, and is separated in reality, as wages,
or rather the reverse, that a portion of wages appears under capi¬
talist production as integral part of profit. This portion, as Adam
Smith correctly deduced, presents itself in pure form, independ¬
ently and wholly separated from profit (as the sum of interest and
profit of enterprise), on the one hand, and on the other, from that
portion of profit which remains, after interest is deducted, as profit
of enterprise in the salary of management of those branches of busi¬
ness whose size, etc., permits of a sufficient division of labour to
justify a special salary for a manager.

The labour of supervision and management is naturally required
wherever the direct process of production assumes the form of a
combined social process, and not of the isolated labour of independ¬
ent producers.73 However, it has a double nature.

On the one hand, all labour in which many individuals co¬
operate necessarily requires a commanding will to co-ordinate and
unify the process, and functions which apply not to partial oper¬
ations but to the total activity of the workshop, much as that of
an orchestra conductor. This is a productive job, which must be
performed in every combined mode of production.

On the other hand — quite apart from any commercial depart-

73 “Superintendence is here” (in the case of the farm owner) “completely
dispensed with.” (J. E. Cairnes, The Slave Power , London, 1862, p. 48.)

384

DIVISION OF PROFIT

ment — this supervision work necessarily arises in all modes of
production based on the antithesis between the labourer, as the
direct producer, and the owner of the means of production. The
greater this antagonism, the greater the role played by supervi¬
sion. Hence it reaches its peak in the slave system.74 But it is in¬
dispensable also in the capitalist mode of production, since the
production process in it is simultaneously a process by which the
capitalist consumes labour-power. Just as in despotic states,
supervision and all-round interference by the government involves
both the performance of common activities arising from the nature
of all communities, and the specific functions arising from the
antithesis between the government and the mass of the people.

In the works of ancient writers, who had the slave system before
them, both sides of the work of supervision are as inseparably com¬
bined in theory as they were in practice. Likewise in the works of
modern economists, who regard the capitalist mode of production
as absolute. On the other hand, as I shall presently illustrate with
an example, the apologists of the modern slave system utilise the
work of supervision quite as much as a justification of slavery, as
the other economists do to justify the wage system.

The villicus in Cato’s time: “At the head of the estate with slave
economy ( familia rustica ) stands the manager ( villicus , derived
from villa), who receives and expends, buys and sells, takes in¬
structions from the master, in whose absence he gives orders and
metes out punishment.... The manager naturally had more free¬
dom of action than the other slaves; the Magonian books advise
that he be permitted to marry, raise children, and have his own
funds, and Cato recommends that he be married to the female man¬
ager; he alone probably had the prospect of winning his freedom
from the master in the event of good behaviour. As for the rest, all
formed a common household — Every slave, including the man¬
ager himself, was supplied his necessities at his master’s expense
at definite intervals and fixed rates, and had to get along on them....
The quantity varied in accordance with labour, which is why the
manager, for example, whose work was lighter than the other
slaves’, received a smaller ration than they. ” (Mommsen, Romische
Geschichte, 2nd ed., 1856, I, pp. 809-10.)

Aristotle: “‘0 fap ScanoT-qc oox ev xviabai toot 800X004, dXX’tv
xip ^pTpSat SooXooq.” (“For the master”— the capitalist — “proves

74 “If the nature of the work requires that the workmen ” (viz., the slaves)
“should be dispersed over an extended area, the number of overseers,
and, therefore, the cost of the labour which requires this supervision, will
be proportionately increased. ” (Cairnes, 1. c., p. 44.)

INTEREST AND PROFIT OF ENTERPRISE

385

himself such not by obtaining slaves” — ownership of capital which
gives him power to buy labour-power — “but in employing
slaves” — using labourers, nowadays wage-labourers, in the pro¬
duction process.) “’Eaxt oe aotij -f] eTCiaTTjp.71 ouSev [liya i^oosa ooSe
aepvov” (“But there is nothing great or sublime about this science.”)
“a fop tov SooXov eixiaxaaOat 8ci itoieiv, exetvov oei zabza sriaiaobat eirix-
atxetv.” (“But whatever the slave must be able to perform, the
master must be able to order.”) “A to ooot<: s£ot»oia jj.t) auxoix; xaxo-
icaOeiv, eiutpojtoc; Xap^avet xaox^v xt]v xi pL-rjv, ai>xoi 8e ixoXtxEuovxou
•f) tpiXoootpouotv.” (“Whenever the masters are not compelled
to plague themselves with supervision, the manager assumes
this honour, while the masters attend to affairs of state or study
philosophy. ”) (Aristotle, De republica, Bekker edition, Book I, 7.)

Aristotle says in just so many words that supremacy in the polit¬
ical and economic fields imposes the functions of government upon
the ruling powers, and hence that they must, in the economic field,
know the art of consuming labour-power. And he adds that this
supervisory work is not a matter of great moment and that for
this reason the master leaves the “honour” of this drudgery to an
overseer as soon as he can afford it.

The work of management and supervision — so far as it is not a
special function determined by the nature of all combined social
labour, but rather by the antithesis between the owner of means
of production and the owner of mere labour-power, regardless of
whether this labour-power is purchased by buying the labourer
himself, as it is under the slave system, or whether the labourer
himself sells his labour-power, so that the production process also
appears as a process by which capital consumes his labour — this
function arising out of the servitude of the direct producers has
all too often been quoted to justify this relationship. And exploita¬
tion, the appropriation of the unpaid labour of others, has quite
as often been represented as the reward justly due to the owner of
capital for his work; but never better than by a champion of slav¬
ery in the United States, a lawyer named O’Connor, at a meeting
held in New York on December 19, 1859, under the slogan of
“Justice for the South.” “Now, gentlemen,” he said amid thunderous
applause, “to that condition of bondage the Negro is assigned by
Nature.... He has strength, and has the power to labour; but the
Nature which created the power denied to him either the intellect to
govern, or willingness to work.” (Applause.) “Both were denied to
him. And that Nature which deprived him of the will to labour,
gave him a master to coerce that will, and to make him a useful ...
servant in the clime in which he was capable of living useful for

386

DIVISION OF PROFIT

himself and for the master who governs him.... I maintain that it
is not injustice to leave the Negro in the condition in which Nature
placed him, to give him a master to govern him ... nor is it depriv¬
ing him of any of his rights to compel him to labour in return, and
afford to that master just compensation for the labour and talent
employed in governing him and rendering him useful to himself
and to the society. ”*

Now, the wage-labourer, like the slave, must have a master who
puts him to work and rules over him. And assuming the existence
of this relationship of lordship and servitude, it is quite proper to
compel the wage-labourer to produce his own wages and also the
wages of supervision, as compensation for the labour of ruling and
supervising him, or “just compensation for the labour and talent
employed in governing him and rendering him useful to himself
and to the society.”

The labour of supervision and management, arising as it does
out of an antithesis, out of the supremacy of capital over labour,
and being therefore common to all modes of production based on
class contradictions like the capitalist mode, is directly and insep¬
arably connected, also under the capitalist system, with productive
functions which all combined social labour assigns to individuals
as their special tasks. The wages of an epitropos, or regisseur, as he
was called in feudal France, are entirely divorced from profit and
assume the form of wages for skilled labour whenever the business
is operated on a sufficiently large scale to warrant paying for
such a manager, although, for all that, our industrial capitalists
are far from “attending to affairs of state or studying philosophy. ”

It has already been remarked by Mr. Ure75 that it is not the in¬
dustrial capitalists, but the industrial managers who are “the soul
of our industrial system. ” Whatever concerns the commercial part
of an establishment we have already said all that is necessary in
the preceding part.**

The capitalist mode of production has brought matters to a
point where the work of supervision, entirely divorced from the
ownership of capital, is always readily obtainable. It has, there¬
fore, come to be useless for the capitalist to perform it himself. An
orchestra conductor need not own the instruments of his orchestra,

• New-York Daily Tribune , November 20, 1859, pp. 7-8. — Ed.

7i A. Ure, Philosophy of Manufactures , French translation, 1836, I, p.
67, where this Pindar of the manufacturers at the same time testifies that
most manufacturers have not the slightest understanding of the mechanism
which they set in motion.

** Present edition: pp. 289-92.— Ed.

INTEREST AND PROFIT OF ENTERPRISE

387

nor is it within the scope of his duties as conductor to have any¬
thing to do with the “wages” of the other musicians. Co-operative
factories furnish proof that the capitalist has become no less redun¬
dant as a functionary in production as he himself, looking down
from his high perch, finds the big landowner redundant. Inasmuch
as the capitalist’s work docs not originate in the purely capital¬
istic process of production, and hence does not cease on its own
when capital ceases; inasmuch as it does not confine itself solely
to the function of exploiting the labour of others; inasmuch as it
therefore originates from the social form of the labour-process,
from combination and co-operation of many in pursuance of a
common result, it is just as independent of capital as that form
itself as soon as it has burst its capitalistic shell. To say that this
labour is necessary as capitalistic labour, or as a function of the
capitalist, only means that the vulgus is unable to conceive the
forms developed in the lap of capitalist production, separate and
free from their antithetical capitalist character. The industrial
capitalist is a worker, compared to the money-capitalist, but a
worker in the sense of capitalist, i.e., an exploiter of the labour of
others. The wage which he claims and pockets for this labour is
exactly equal to the appropriated quantity of another’s labour
and depends directly upon the rate of exploitation of this labour,
in so far as he undertakes the effort required for exploitation; it
does not, however, depend on the degree of exertion that such
exploitation demands, and which he can shift to a manager for
moderate pay. After every crisis there are enough ex-manufactur¬
ers in the English factory districts who will supervise, for low
wages, what were formerly their own factories in the capacity of
managers of the new owners, who are frequently their creditors.78

The wages of management both for the commercial and indus¬
trial manager are completely isolated from the profits of enterprise
in the co-operative factories of labourers, as well as in capitalist
stock companies. The separation of wages of management from
profits of enterprise, purely accidental at other times, is here
constant. In a co-operative factory the antagonistic nature of the
labour of supervision disappears, because the manager is paid by
the labourers instead of representing capital counterposed to them.
Stock companies in general — developed with the credit system—

78 In a case known to me, following the crisis of 1868, a bankrupt manu¬
facturer became the paid wage labourer of his own former labourers. The
factory was operated after the bankruptcy of its owner by a labourers’ co¬
operative, and its former owner was employed as manager. — F. E.

388

DIVISION OF PROFIT

have an increasing tendency to separate this work of management
as a function from the ownership of capital, be it self-owned or
borrowed. Just as the development of bourgeois society witnessed a
separation of the functions of judges and administrators from land-
ownership, whose attributes they were in feudal times. But since,
on the one hand, the mere owner of capital, the money-capitalist,
has to face the functioning capitalist, while money-capital itself
assumes a social character with the advance of credit, being con¬
centrated in banks and loaned out by them instead of its original
owners, and since, on the other hand, the mere manager who has
no title whatever to the capital, whether through borrowing it or
otherwise, performs all the real functions pertaining to the func¬
tioning capitalist as such, only the functionary remains and the
capitalist disappears as superfluous from the production process.

It is manifest from the public accounts of the co-operative facto¬
ries in England” that — after deducting the manager’s wages, which
form a part of the invested variable capital much the same as
wages of other labourers — the profit was higher than the average
profit, although at times they paid a much higher interest than did
private manufacturers. The source of greater profits in all these
cases was greater economy in the application of constant capital.
What interests us in this, however, is the fact that here the aver¬
age profit (— interest + pro fit of enterprise) presents itself actually
and palpably as a magnitude wholly independent of the wages
of management. Since the profit was higher here than average
profit, the profit of enterprise was also higher than usual.

The same situation is observed in relation to some capitalist
stock companies, such as joint-stock banks. The London and West¬
minster Bank paid an annual dividend of 30% in 1863, while the
Union Bank of London and others paid 15%. Aside from the di¬
rectors’ salary the interest paid for deposits is here deducted from
gross profit. The high profit is to bo explained here by the moderate
proportion of paid-in capital to deposits. For instance, in the case
of the London and Westminster Bank, in 1863: paid-in capital,
£1,000,000; deposits, £14,540,275. As for the Union Bank of
London, in 1863: paid-in capital, £600,000; deposits, £12,384,173.

Profit of enterprise and wages of supervision, or management,
were confused originally due to the antagonistic form assumed in
respect to interest by the surplus of profit. This was further pro¬
moted by the apologetic aim of representing profit not as a surplus-

77 The accounts quoted here go no further than 18G4, since the above
was written in 1865. — /’. E.

INTEREST AND PROFIT OF ENTERPRISE

389

value derived from unpaid labour, but as the capitalist’s wages
for work performed by him. This was met on the part of socialists
by a demand to reduce profit actually to what it pretended to be
theoretically, namely, mere wages of supervision. And this demand
was all the more obnoxious to theoretical embellishment, the more
these wages of supervision, like any other wage, found their defi¬
nite level and definite market-price, on the one hand, with the
development of a numerous class of industrial and commercial
managers,’8 and the more they fell, on the other, like all wages for
skilled labour, with the general development which reduces the
cost of production of specially trained labour-power.78 With
the development of co-operation on the part of the labourers, and
of stock enterprises on the part of the bourgeoisie, even the last
pretext for the confusion of profit of enterprise and wages of
management was removed, and profit appeared also in practice as it
undeniably appeared in theory, as mere surplus-value, a value for
which no equivalent was paid, as realised unpaid labour. It was
then seen that the functioning capitalist really exploits labour,
and that the fruit of his exploitation, when working with borrowed
capital, was divided into interest and profit of enterprise, a
surplus of profit over interest.

On the basis of capitalist production a new swindle develops in
stock enterprises with respect to wages of management, in that
boards of numerous managers or directors are placed above the
actual director, for whom supervision and management serve only
as a pretext to plunder the stockholders and amass wealth. Very
curious details concerning this are to be found in The City or the
Physiology of London Business', with Sketches on ’Change, and the
Coffee Houses, London, 1845. “What bankers and merchants gain
by the direction of eight or nine different companies, may be seen
from the following illustration: The private balance sheet of

78 “Masters are labourers as well as their journeymen. In this character
their interest is precisely the same as that of their men. But they are also
either capitalists, or the agents of the capitalists, and in this respect their
interest is decidedly opposed to the interests of the workmen” (p. 27). “The
wide spread of education among the journeymen mechanics of this country
diminishes daily the value of the labour and skill of almost all masters and
employers by increasing the number of persons who possess their peculiar
knowledge” (p. 30, Hodgskin, Labour Defended Against the Claims of Capital,
etc., London, 1825).

78 “The general relaxation of conventional barriers, the increased facili¬
ties of education tend to bring down the wages of skilled labour instead of
raising those of the unskilled.” (J. St. Mill, Principles of Political Economy,
2nd ed., London, 1849, I, p. 479.)

390

DIVISION OF PROFIT

Mr. Timothy Abraham Curtis, presented to the Court of Bankruptcy
when that gentleman failed, exhibited a sample of the income
netted from directorship ... between £800 and £900 a year. Mr.
Curtis having been associated with the Courts of the Bank of
England, and the East India House, it was considered quite a
plum for a public company to acquire his services in the board-
room” (pp. 81, 82). The remuneration of the directors of such
companies for each weekly meeting is at least one guinea. The
proceedings of the Court of Bankruptcy show that these wages of
supervision were, as a rule, inversely proportional to the actual
supervision performed by these nominal directors.

CHAPTER XXIV

EXTERNALISATION OF THE RELATIONS OF CAPITAL
IN THE FORM OF INTEREST-BEARING CAPITAL

The relations of capital assume their most externalised and most
fetish-like form in interest-bearing capital. We have here M — M\
money creating more money, self-expanding value, without the
process that effectuates these two extremes. In merchant’s capital,
M — C- M', there is at least the general form of the capitalistic
movement, although it confines itself solely to the sphere of circu¬
lation, so that profit appears merely as profit derived from aliena¬
tion; but it is at least seen to be the product of a social relation, not
the product of a mere thing. The form of merchant’s capital at
least presents a process, a unity of opposing phases, a movement
that breaks up into two opposite actions — the purchase and the
sale of commodities. This is obliterated in M — M', the form of
interest-bearing capital. For instance, if £1,000 are loaned out
by a capitalist at a rate of interest of 5%, the value of £1,000 as a
capital for one year =C+Ci', where C is the capital and i' the rate
of interest. Hence, 5 % = B /100 — 1 /20» and 1, 000+1, 000 x1/t0 =
=£1,050. The value of £1,000 as capital =£1,050, i.e., capital
is not a simple magnitude. It is a relationship of magnitudes, a
relationship of the principal sum as a given value to itself as a self¬
expanding value, as a principal sum which has produced a surplus-
value. And capital as such, as we have seen, assumes this form of a
directly self-expanding value for all active capitalists, whether
they operate on their own or borrowed capital.

M— M'. We have here the original starting-point of capital,
money in the formula M — G — m reduced to its two extremes
M — M', in which M' = M-4-AM, money creating more money. It is the
primary and general formula of capital reduced to a meaningless
condensation. It is ready capital, a unity of the process of produc¬
tion and the process of circulation, and hence capital yielding a

392

DIVISION OF PROFIT

definite surplus-value in a particular period of time. In the form of
interest-bearing capital this appears directly, unassisted by the
processes of production and circulation. Capital appears as a
mysterious and self-creating source of interest — the source of its
own increase. The thing (money, commodity, value) is now capital
even as a mere thing, and capital appears as a mere thing. The
result of the entire process of reproduction appears as a property
inherent in the thing itself. It depends on the owner of the money,
i.e., of the commodity in its continually exchangeable form,
whether he wants to spend it as money or loan it out as capital. In
interest-bearing capital, therefore, this automatic fetish, self¬
expanding value, money generating money, are hrought out in
their pure state and in this form it no longer bears the birth¬
marks of its origin. The social relation is consummated in the
relation of a thing, of money, to itself. Instead of the actual trans¬
formation of money into capital, we see here only form without
content. As in the case of labour-power, the use-value of money here
is its capacity of creating value — a value greater than it contains.
Money as money is potentially self-expanding value and is loaned
out as such — which is the form of sale for this singular commodity.
It becomes a property of money to generate value and yield inter¬
est, much as it is an attribute of pear-trees to bear pears. And the
money-lender sells his money as just such an interest-bearing
thing. But that is not all. The actually functioning capital, as we
have seen, presents itself in such a light, that it seems to yield
interest not as a functioning capital, but as capital in itself, as
money-capital.

This, too, becomes distorted. While interest is only a portion of
the profit, i.e., of the surplus-value, which the functioning capital¬
ist squeezes out of the labourer, it appears now, on the contrary,
as though interest were the typical product of capital, the primary
matter, and profit, in the shape of profit of enterprise, were a
mere accessory and by-product of the process of reproduction.
Thus we get the fetish form of capital and the conception of fetish
capital. In M — M' we have the meaningless form of capital, the
perversion and objectification of production relations in their high¬
est degree, the interest-bearing form, the simple form of capital, in
which it antecedes its own process of reproduction. It is the capacity
of money, or of a commodity, to expand its own value independ¬
ently of reproduction — which is a mystification of capital in its
most flagrant form.

For vulgar political economy, which seeks to represent capital
as an independent source of value, of value creation, this form is

externalisation of relations of capital

393

naturally a veritable find, a form in which the source of profit
is no longer discernible, and in which the result of the capitalist
process of production — divorced from the process — acquires an
independent existence.

It is not until capital is money-capital that it becomes a com¬
modity, whose capacity for self-expansion has a definite price
quoted every time in every prevailing rate of interest.

As interest-bearing capital, and particularly in its direct form of
interest-bearing money-capital (the other forms of interest-bearing
capital, which do not concern us here, are derivatives of this form
and presuppose its existence), capital assumes its pure fetish form,
M — M' being the subject, the saleable thing. Firstly , through its
continual existence as money, a form, in which all its specific attri¬
butes are obliterated and its real elements invisible. For money is
precisely that form in which the distinctive features of commodities
as use-values are obscured, and hence also the distinctive features
of the industrial capitals which consist of these commodities and
conditions of their production. It is that form, in which value — in
this case capital — exists as an independent exchange-value. In
the reproduction process of capital, the money-form is but tran¬
sient — a mere point of transit. But in the money-market capital
always exists in this form. Secondly, the surplus-value produced by
it, here again in the form of money, appears as an inherent part of
it. As the growing process is to trees, so generating money (toxo;)
appears innate in capital in its form of money-capital.

In interest-bearing capital the movement of capital is contracted .
The intervening process is omitted. In this way, a capital = 1,000
is fixed as a thing, which in itself = 1,100, and which is trans¬
formed after a certain period into 1 ,100 just as wine stored in a cellar
improves its use-value after a certain period. Capital is now a
thing, but as a thing it is capital. Money is now pregnant.* As soon
as it is loaned out, or invested in the reproduction process (inas¬
much as it yields interest to the functioning capitalist as its owner,
separate from profit of enterprise), interest on it grows, no matter
whether it is awake or asleep, is at home or abroad, by day or by
night. Thus interest-bearing money-capital (and all capital is
money-capital in terms of its value, or is considered as the expres¬
sion of money-capital) fulfils the most fervent wish of the hoarder.

It is this ingrown existence of interest in money-capital as in a
thing (this is how the production of surplus-value through capital
appears here), which occupies Luther’s attention so thoroughly in

• Goethe, Faust, Part I, Scene 5 .—Ed.

394

DIVISION OF PROFIT

his naive onslaught against usury. After demonstrating that inter¬
est may be demanded if the failure to repay a loan on a definite
date to a lender who himself required it to make some payment,
caused a loss to him, or resulted in his missing an opportunity to
make a profit on a bargain, for instance, in buying a garden,
Luther continues: “Now that I have loaned you them (100 gulden),
you cause me a double loss due to my not being able to pay on the
one hand nor buy on the other, so that I have to lose on both sides,
and this is called duplex interesse, damni emergentis et lucri cessan-
tis.... On hearing that John sustained losses on his loan of 100 gul¬
den and demands just damages, they rush in and charge double on
every 100 gulden, such double reimbursement, namely, for the
losS due to non-payment and to inability to make a profit on a bar¬
gain, just as though these 100 gulden had the double loss grown on
to them, so that whenever they have 100 gulden, they loan them
out and charge for two losses, which they have not at all sustained....
Therefore you are a usurer, who takes damages out of his neigh¬
bour’s money for an imaginary loss that you did not sustain at all,
and which you can neither prove nor calculate. This sort of loss is
called by the jurists non verum, sed phantasticum interesse. It is a
loss which each conjures up for himself.... It will not do to say,
therefore, that there could have been losses because I could not
have been able to pay or buy. Else it would mean ex contingente
necessarium, which is making something out of a thing that is not,
and a thing that is uncertain into a thing that is absolutely sure.
Would not such usury devour the world in a few years?... If an un¬
happy accident befalls him against his will, and he must recover
from it, he may demand damages for it, but it is different in trade
and just the reverse. There they scheme to profit at the expense of
their needy neighbours, how to amass wealth and get rich, to be lazy
and idle and live in luxury on the labour of others, without any
care, danger, and loss. To sit by the stove and let my 100 gulden
gather wealth for me in the country and yet keep them in my
pocket, because they are only loaned, without any danger or risk —
my friend, who would not like that?” (Martin Luther, An die
Pfarherrn wider den Wucher zu predigen, etc., Wittenberg, 1540.)

The conception of capital as a self-reproducing and self-expand
ing value, lasting and growing eternally by- virtue of its innate
properties — hence by virtue of the hidden quality of scholas-
ticists — has led to the fabulous fancies of Dr. Price, which outdo
by far the fantasies of the alchemists; fancies, in which Pitt be¬
lieved in all earnest, and which he used as pillars of his financial
administration in his laws concerning the sinking fund.

EXTERN M.ISATION OF RELATIONS OF CAPITAL

395

“Money bearing compound interest increases at first slowly.
But, the rate of increase being continually accelerated, it becomes
in some time so rapid, as to mock all the powers of the imagination.
One penny, put out at our Saviour’s birth to 5 per cent compound
interest, would, before this time, have increased to a greater sum,
than would be contained in a hundred and fifty millions of earths,
all solid gold. But if put out to simple interest, it would, in the
same time, have amounted to no more than seven shillings and
four pence half-penny. Our government has hitherto chosen to
improve money in the last, rather than the first of these ways.”80

His fancy flies still higher in his Observations on Reversionary
Payments , etc., London, 1772. There we read: “A shilling put out
to 6% compound interest at our Saviour’s birth” (presumably in
the Temple of Jerusalem) “would... have increased to a greater
sum than the whole solar system could hold, supposing it a sphero
equal in diameter to the diameter of Saturn’s orbit.” “A state
need never therefore be under any difficulties; for with the smallest
savings it may in as little time as its interest can require pay off
the largest debts” (pp. XIII, XIV). What a pretty theoretical
introduction to the national debt of England!

Price was simply dazzled by the gargantuan dimensions
obtained in a geometrical progression. Since he took no note of the
conditions of reproduction and labour, and regarded capital as a
self-regulating automaton, as a mere number that increases itself

80 Richard Price, An Appeal to the Public on the Subject of the National
Debt, 2nded., London, 1774, p. 19. He cracks the naive joke: “It is borrow¬
ing money at simple interest, in ordor to improve it at compound interest.”
(R. Hamilton, An Inquiry into the Rise and Progress of the National Debt
of Great Britain, 2nd ed., Edinburgh, 1814, p. 133.) According to this, bor¬
rowing would be the safest means also for private people to gather wealth.
But if I borrow £100 at 5% annual interest, I have to pay £5 at the end of
the year, and even if the loan lasts for 100 million years, I have meanwhile
only £100 to loan every year and £5 to pay every year. I can never manage
by this process to loan £ 105 when borrowing £100. And how am I going to
pay 5%? By new loans, or, if it is the state, by new taxes. Now, if the indus¬
trial capitalist borrows money, and his profit amounts to, say, 15%, he
may pay 5% interest, spend 5% for his private expenses (although his appe¬
tite grows with his income), and capitalise 5%. In this case, 15% is the
precondition for paying continually 5% interest. If this process continues,
the rate of profit, for the reasons indicated in former chapters, will fall from
15% to, say, 10%. But Price entirely forgets that the interest of 5% pre¬
supposes a rate of profit of 15%, and assumes it to continue with the
accumulation of capital. He has nothing whatsoever to do with the actual
process of accumulation, but rather only with lending money and getting it
back with compound interest. How that is accomplished is immaterial to
him, since it is the innate property of interest-bearing capital.

396

DIVISION OF PROFIT

just as Malthus did with respect to population in his geometrical
progression,* he was struck by the thought that he had found the law
of its growth in the formula s = c(l + i)n, in which s = the sum of
capital-f-compound interest, c=advanced capital, i=rate of inter¬
est (expressed in aliquot parts of 100) and n stands for the number
of yfears in which this process takes place.

Pitt takes Dr. Price’s mystification quite seriously. In 1786 the
House of Commons had resolved to raise £1 million for the public
weal. According to Price, in whom Pitt believed, there was, of
course, no better way than to tax the people, so as to “accumulate”
this sum after raising it, and thus to spirit away the national debt
through the mystery of compound interest. The above resolution
of the House of Commons was soon followed up by Pitt with a law
which ordered the accumulation of £250,000, “until, with the
expired annuities, the fund should have grown to £4,000,000
annually.” (Act 26, George III, Chap. 31.**) In his speech of 1792,
in which Pitt proposed that the amount devoted to the sinking
fund be increased, he mentioned machines, credit, etc., among
the causes of England’s commercial supremacy, but as “the most
wide-spread and enduring cause, that of accumulation.” This
principle, he said , was completely developed in the work of Smith ,
that genius ... and this accumulation, he continued, was accom¬
plished by laying aside at least a portion of the annual profit for
the purpose of increasing the principal, which was to be employed
in the same manner the following year, and which thus yielded
a continual, profit. With Dr. Price’s aid Pitt thus converts Smith ’s
theory of accumulation into enrichment of a nation by means of
accumulating debts, and thus arrives at the pleasant progression
of an infinity of loans — loans to pay loans.

It had already been noted by Josiah Child, the father of modern
banking, that £100 at 10% would produce in 70 years by compound
interest £102,400. ( Traite sur le commerce, etc., par J. Child,
traduit, etc., Amsterdam et Berlin, 1754, p. 115. Written in 1669.)

How thoughtlessly Dr. Price’s conception is applied by modern
economists, is shown in the following passage from the Econo¬
mist : “Capital, with compound interest on every portion of capital
saved, is so all-engrossing that all the wealth in the world
from which income is derived, has long ago become the interest

* [Malthus] An Essay on the Principle of Population, London, 1798,
pp. 25-26. — Ed.

** “An Act for vesting certain sums in Commissioners, at the End of every
Quarter of a Year, to be by them applied to the Reduction of the National
Debt” (Anno 26 Georgii III, Regis, cap. 31).— Ed.

EXTERNALISATION OF RELATIONS OF CAPITAL

397

of capital.... All rent is now the payment of interest on capital
previously invested in the land.” ( Economist , July 19, 1851.) In
its capacity of interest-bearing capital, capital claims the owner¬
ship of all wealth which can ever be produced, and everything it
has received so far is but an instalment for its all-engrossing appe¬
tite. By its innate laws, all surplus-labour which the human race
can ever perform belongs to it. Moloch.

In conclusion, the following hodge-podge by the romantic Mul¬
ler: “Dr. Price’s immense increase of compound interest, or of the
self-accelerating forces of man, presupposes an undivided, or unin¬
terrupted, uniform application for several centuries, if they are to
produce such enormous effects. As soon as capital is divided, cut
up into several independently growing shoots, the total process of
accumulating forces begins anew. Nature has distributed over a
span of about 20 to 25 years the progression of energy which falls
on an average to the share of every labourer (!). After the lapse of
this time the labourer leaves his career and must transfer the capi¬
tal accumulated by the compound interest of labour to a new
labourer, mostly distributing it among several labourers or chil¬
dren. These must first learn to activate and apply their share of
capital, before they can draw any actual compound interest on it.
Furthermore, an enormous quantity of capital gained by civil
society even in the most restless communities, is gradually accu¬
mulated over many years and not employed for any immediate
expansion of labour. Instead, as soon as an appreciable sum is
gathered together, it is transferred to another individual, a labourer,
bank or state, under the head of a loan. And the receiver then
sets the capital into actual motion and draws compound interest
on it, so that he can easily pledge to pay simple interest to the
lender. Finally, the law of consumption, greed, and waste opposes
those huge progressions, in which man’s powers and their products
would multiply if the law of production, or thrift, were alone
effective.” (A. Muller, Elemente der S taatskunst , III, pp. 147-49.)

It is impossible to concoct a more hair-raising absurdity in So
few lines. Leaving aside the droll confusion of labourer and capital¬
ist, value of labour-power and interest on capital, etc., the charg¬
ing of compound interest is supposed to be explained by the fact
that capital is loaned out to bring in compound interest. The
method employed by our Muller is thoroughly characteristic of the
romanticism in all walks of life. It is made up of current preju¬
dices, skimmed from the most superficial semblance of things. This
incorrect and trite content should then be “exalted ’’and rendered
sublime through a mystifying mode of expression.

398

DIVISION OF PROFIT

The process of accumulation of capital may be conceived as an
accumulation of compound interest in the sense that the portion
of profit (surplus-value) which is reconverted into capital, i.e.,
serves to absorb more surplus-labour, may be called interest. But:

1) Aside from all incidental interference, a large part of available
capital is constantly more or less depreciated in the course of
the reproduction process, because the value of commodities is not
determined by the labour-time originally expended in their pro¬
duction, but by the labour-time expended in their reproduction,
and this decreases continually owing to the development of the
social productivity of labour. On a higher level of social produc¬
tivity, all available capital appears, for this reason, to be the result
of a relatively short period of reproduction, instead of a long
process of accumulation of capital.81

2) As demonstrated in Part III of this book, the rate of profit de¬
creases in proportion to the mounting accumulation of capital and
the correspondingly increasing productivity of social labour,
which is expressed precisely in the relative and progressive decrease
of the variable as compared to the constant portion of capital.
To produce the same rate of profit after the constant capital set in
motion by one labourer increases ten-fold, the surplus labour-time
would have to increase ten-fold, and soon the total labour-time,
and finally the entire 24 hours of a day, would not suffice, even if
wholly appropriated by capital. The idea that the rate of profit
does not shrink is, however, the basis of Price’s progression and
in general the basis of “all-engrossing capital with compound
interest. ”82

The identity of surplus-value and surplus-labour imposes a qual¬
itative limit upon the accumulation of capital. This consists of
the total working-day, and the prevailing development of the pro¬
ductive forces and of the population, which limits the number of
simultaneously exploitable working-days. But if one conceives of

81 See Mill and Carey, and Roscher’s mistaken commentary on this score.
[Marx refers to the following works: J. St. Mill, Principles of Political
Economy, Second edition, Vol. I, London, 1849, pp. 91-92; H. Ch. Carey,
Principles of Social Science, Vol. Ill, Philadelphia, 1859, pp. 71-73; W. Ros
cher. Die Grundlagen der N ationalokonomie, 3 Auflage, Stuttgart und Augs¬
burg, 1858, § 45 .—Ed. ]

“It is clear, that no labour, no productive power, no ingenuity, and
no art, can answer the overwhelming demands ol compound interest. But
all saving is made from the revenue of the capitalist, so that actually these
demands are constantly made and as constantly the productive power of
labour refuses to satisfy them. A sort of balance is, therefore, constantly
struck." ( Labour Defended Against the Claims of Capital, p. 23. By
Hodgskin.)

EXTERNALISATION OF RELATIONS OF CAPITAL

399

surplus-value in Ihe meaningless form of interest, the limit is
merely quantitative and defies all fantasy.

Now, the concept of capital as a fetish reaches its height in inter¬
est-bearing capital, being a conception which attributes to the
accumulated product of labour, and at that in the fixed form of
money, the inherent secret power, as an automaton, of creating
surplus-value in geometrical progression, so that the accumulated
product of labour, as the Economist thinks, has long discounted
all the wealth of the world for all time as belonging to it and right¬
fully coming to it. The product of past labour, the past labour
itself, is here pregnant in itself with a portion of present or future
living surplus-labour. We know, however, that in reality the preser¬
vation, and to that extent also the reproduction of the value of
products of past labour is only the result of their contact with liv¬
ing labour; and secondly, that the domination of the products of
past labour over living surplus-labour lasts only as long as the
relations of capital, which rest on those particular social relations
in which past labour independently and overwhelmingly dominates
over living labour.

CHAPTER XXV

CREDIT AND FICTITIOUS CAPITAL

An exhaustive analysis of the credit system and of the instru¬
ments which it creates for its own use (credit-money, etc.) lies be¬
yond our plan. We merely wish to dwell here upon a few particular
points, which are required to characterise the capitalist mode of
production in general. We shall deal only with commercial and
bank credit. The connection between the development of this form
of credit and that of public credit will not be considered here.

I have shown earlier (Buch I, Kap. Ill, 3, b*) how the function
of moneyas a means of payment, and therewith a relation of cred¬
itor and debtor between the producer and trader of commodities,
develop from the simple circulation of commodities. With the de¬
velopment of commerce and of the capitalist mode of production,
which produces solely with an eye to circulation, this natural basis
of the credit system is extended, generalised, and worked out.
Money serves here, by and large, merely as a means of payment, i.e.,
commodities are not sold for money, but for a written promise to
pay for them at a certain date. For brevity’s sake, we may put all
these promissory notes under the general head of bills of exchange.
Such bills of exchange, in their turn, circulate as means of pay¬
ment until the day on which they fall due; and they form the actual
commercial money. Inasmuch as they ultimately neutralise one
another through the balancing of claims and debts, they act abso¬
lutely as money, although there is no eventual transformation
into actual money. Just as these mutual advances of producers
and merchants make up the real foundation of credit, so does
the instrument of their circulation, the bill of exchange, form the

* English edition: Ch. Ill, 3, b. — Ed.

CREDIT AND FICTITIOUS CAPITAL

401

basis of credit-money proper, of bank-notes, etc. These do not rest
upon the circulation of money, be it metallic or government-issued
paper money, but rather upon the circulation of bills of exchange.

W. Leatham (banker of Yorkshire) writes in his Letters on the Currency,
2nd ed., London, 1840: “I End, then, the amount for the whole of the year
of 1839 ... to be £528,493,842” (he assumed that the foreign bills of exchange
made up about one- fifth of the total) “and the amount of bills out at one
time in the ahove year, to be £132,123,460" (p. 561. The bills of exchange
make up “one component part greater in amount than all the rest put to¬
gether” (p. 3). “This enormous superstructure of bills of exchange rests (!)
upon the base formed by the amount of bank-notes and gold, and when,
by events, this base becomes too much narrowed, its solidity and very exist¬
ence is endangered” (p. 8). “If I estimate the whole .currency ” (he means
of the bank-notes) “and the amount of the liabilities of the Bank and country
bankers, payable on demand, I find a sum of 153 million, which, by law,
can be converted into gold ... and the amount of gold to meet this demand”
only 14 million (p. 11). “The bills of exchange are not ... placed under any
control, except by preventing the abundance of money, excessive and low
rates of interest or discount, which create a part of them, and encourage
their great and dangerous expansion. It is impossible to decide what part
arises out of real bond fide transactions, such as actual bargain and sale,
or what part is fictitious ond mere accommodation paper, that is, where
one bill of exchange is drawn to take up another running, in order to raise
a fictitious capital, by creating so much currency. In times of abundance
and cheap money this I know reaches an enormous amount” (pp. 43-44).
1. W. Bosanquet, Metallic, Paper and Credit Currency, London, 1842: “An
average amount of payments to the extent of upwards of £3,000,000 is
settled through the Clearing House (where the London bankers exchange due
bills and filed cheques) every day of business in the year, and the daily
amount of money required for the purpose is little more than £200,000” (p. 86).
[In 1889. the total turnover of the Clearing House amounted to £7,618,/4
million, which, in roughly 300 business days, averages fl25l/» million daily.
— F. E.) “Bills of exchange act undoubtedly as currency, independent of
money, " inasmuch as they transfer property from hand to hand by en¬
dorsement (p. 92). It may be assumed that “upon an average there are two
endorsements upon every bill in circulation, and ... each bill performs two
payments before it becomes due. Upon this assumption it would appear,
that by endorsement alone property changed hands, by means of bills of
exchange, to the value of twice five hundred and twenty-eight million, or
£ 1,056,000,000, being at the rate of more than £3,000,000 per day, in the
course of the year 1839. We may safely therefore conclude, that deposits and
bills of exchange together, perform the functions of money, by transferring
property from hand to hand without the aid of money, to an extent daily
of not less than £18,000,000" (p. 93).

Tooke says the following about credit in general: “Credit, in its most
simple expression, is the confidence which, well, or ill-founded, leads a
person to entrust another with a certain amount of capital, in money, or in
goods computed at a value in money agreed upon, ana in each case payable
at the expiration of a fixed term. In the case where the capital is lent in
money, that is whether in bank-notes, or in a cash credit, or in an order
upon a correspondent, an addition for the use of the capital of so much upon
every £100 is made to the amount to be repaid. In the case of goods the

402

DIVISION OF PROFIT

value of which is agreed in terms of money, constituting a sale, the sum
stipulated to be repaid includes a consideration for the use of the capital
ana for the risk, till the expiration of the period fixed for payment. Written
obligations of payment at fixed dates mostly accompany these credits, and
the obligations or promissory notes after date being transferable, form the
means by which the lenders, if they have occasion for the use of their capital,
in the shape whether of money or goods, before the expiration of the term
of the bills they hold, are mostly enabled to borrow or to buy on lower terms,
by having their own credit strengthened by the names on the bills in addi¬
tion to their own.” ( Inquiry into the Currency Principle, p. 87.)

Ch. Coquelin, Du Credit et des Banques dans I'Industrie, Revue des Deux
Mondes, 1842, Tome 31: “In every country the majority of credit transac¬
tions takes place within the circle of industrial relations.... The producer
of the raw material advances it to the processing manufacturer, and receives
from the latter a promise to pay on a certain day. The manufacturer, having
completed his share of the work, in his turn advances his product on similar
terms to another manufacturer, who has to process it further, and in this
way credit stretches on and on, from one to the other, right up to the con¬
sumer. The wholesale dealer gives the retailer commodities on credit, while
receiving credit from a manufacturer or commission agent. All borrow with
one hand and lend with the other, sometimes money, but more frequently
products. In this manner an incessant exchange of advances, which combine
and intersect in all directions, takes place in industrial relations. The
development of credit consists precisely in this multiplication and growth
of mutual advances, and therein is the real seat of its power. ”

The other side of the credit system is connected with thedevelop-
ment of money-dealing, which, of course, keeps step under capital¬
ist production with the development of dealing in commodity.
We have seen in the preceding part (Chap. XIX) how the care of
the reserve funds of businessmen, the technical operations of
receiving and disbursing money, of international payments, and
thus of the bullion trade, are concentrated in the hands of the
money-dealers. The other side of the credit system — the manage¬
ment of interest-bearing capital, or money-capital, develops along¬
side this money-dealing as a special function of the money-dealers.
Borrowing and lending money becomes their particular business.
They act as middlemen between the actual lender and the borrower
of money-capital. Generally speaking, this aspect of the banking
business consists of concentrating large amounts of the loanable
money-capital in the bankers’ hands, so that, in place of the individ¬
ual money-lender, the bankers confront the industrial capital¬
ists and commercial capitalists as representatives of all money¬
lenders. They become the general managers of money-capital.
On the other hand by borrowing for the entire world of commerce,
they concentrate all the borrowers vis-a-vis all the lenders. A bank
represents a centralisation of money-capital, of the lenders, on the
one hand, and on the other a centralisation of the borrowers. Its

CKEDIT AND FICTITIOUS CAPITAL

403

profit is generally made by borrowing at a lower rate of interest
than it receives in loaning.

The loanable capital which the banks have at their disposal
streams to them in various ways. In tlie first place, being the
cashiers of the industrial capitalists, ail the money-capital which
every producer and merchant must have as a reserve fund, or re¬
ceives in payment, is concentrated in their hands. These funds are
thus converted into loanable money-capital. In this way, the
reserve fund of the commercial world, because it is concentrated
in a common treasury, is reduced to its necessary minimum, and a
portion of the money-capital which would otherwise have to lie
slumbering as a reserve fund, is loaned out and serves as interest-
bearing capital. In the second place, the loanable capital of the
banks is formed by the deposits of money-capitalists who entrust
them with the business of loaning them out. Furthermore, with the
development of the banking system, and particularly as soon as
banks came to pay interest on deposits, money savings and the
temporarily idle money of all classes were deposited with them.
Small amounts, each in itself incapable of acting in the capacity
of money-capital, merge together into large masses and thus form
a money power. This aggregation of small amounts must be dis¬
tinguished as a specific function of the banking system from ils
go-between activities between tho money-capitalists proper and
the borrowers. In the final analysis, the revenues, which are usual¬
ly but gradually consumed, are also deposited with the banks.

The loan is made (we refer here strictly to commercial credit) by
discounting bills of exchange— by converting bills of exchange
into money before they come due— and by advances of various
kinds: direct advances on personal credit, loans against securities,
such as interest-bearing paper, government paper, stocks of all
sorts, and, notably, overdrafts against bills of lading, dock war¬
rants, and other certified titles of ownership of commodities and
overdrawing deposits, etc.

The credit given by a banker may assume various forms, such as
bills of exchange on other banks, cheques on them, credit accounts
of the same kind, and finally, if the bank is entitled to issue notes
— bank-notes of the bank itself. A bank-note is nothing but a
draft upon a banker, payable at any time to the bearer, and given
by the banker in place of private drafts. This last form of credit
appears particularly important and striking to the layman, first,
because this form of credit-money breaks out of the confines of
mere commercial circulation into general circulation, and serves
there as money; and because in most countries the principal

404

DIVISION OF PROFIT

banks issuing notes, being a peculiar mixture of national and pri¬
vate banks, actually have the national credit to back them, and
their notes are more or less legal tender; because it is apparent
here that the banker deals in credit itself, a bank-note being mere¬
ly a circulating token of credit. But the banker also has to do with
credit in all its other forms, even when he advances the cash money
deposited with him. In fact, a bank-note simply represents the
coin of wholesale trade, and it is always the deposit which carries
the most weight with banks. The best proof of this is furnished by
the Scottish banks.

Special credit institutions, like special forms of banks, need no
further consideration for our purpose.

“The business of bankers ... may be divided into two branches.... One
branch of the banker’s business is to collect capital from those who have
not immediate employment for it, and to distribute or transfer it to those
who have. The other branch is to receive deposits of the incomes of their
customers, and to pay out the amount, as it is wanted for expenditure by the
latter in the objects of their consumption.... The former being a circulation
of capital, the latter of currency...." One “relates to the concentration of
capital on the one hand and the distribution of it on the other,” the other
“is employed in administering the circulation for local purposes of the dis¬
trict. ” Tooke, Inquiry into the Currency Principle, pp. 36, 37. We shall
revert to this passage later, in Chapter XXVIII.

Reports of Committees, Vol. VIII. Commercial Distress, Vol. II, Part I,
1847-48, Minutes of Evidence. (Further quoted as Commercial Distress,
1847-48.) In the forties, when discounting bills of exchange in London,
21-day drafts of one bank on another were often accepted in lieu of bank¬
notes. (Testimony of J. Pease, country banker, Nos. 4636 and 4645.) Accord¬
ing to the same report, bankers were in the habit of giving such bills of
exchange regularly in payment to their customers whenever money was tight.
If the receiver wanted bank-notes, he had to rediscount this bill. For the
banks this amounted to a privilege of coining money. Messrs. Jones, Loyd
and Co. made payments in this way “from time immemorial, " as soon as
money was scarce and the rate of interest rose above 5%. The customer was
glad to get such banker's bills because bills from Jones, Loyd and Co. were
easier discounted than his own; besides, they often passed through twenty
to thirty hands. (Ibid., Nos. 901 to 904, 905, 992.)

All these forms serve to make the payments claim transferable. — “There
is scarcely any shape into which credit can be cast, in which it will not at
times be called to perform the functions of money; and whether that shape
be a bank-note, or a bill of exchange, or a banker’s cheque, the process is in
every essential particular the same, and the result is tne same. ” Fullarton,
On the Regulation of Currencies, 2nd ed., London, 1845, p. 38. — “Bank¬
notes are the small change of credit” (p. 51).

The following from J. W. Gilbert 's The History and Principles of Bank¬
ing, London, 1834: “The trading capital of a bank may be divided into two
parts: the invested capital, and the borrowed banking capital” (p. 117).
“There are three ways of raising a banking or borrowed capital. First, by
receiving deposits; secondly, by the issuing of notes; thirdly, by the drawing
of bills. If a person will lend me £100 for nothing, and I lend that 8100

CREDIT AND FICTITIOUS CAPITAL

405

to another person at four per cent interest, then, in the course of a year,

I shall gain S4 by the transaction. Again, if a person will take my ‘promise
to pay’” (“I promise to pay” is the usual formula for English bank-notes)
“and bring it Dack to me at the end of the year, and pay me four per cent for
it just the same as though I had lent him 100 sovereigns, then I shall gain
S4 by that transaction; and again, if a person in a country town brings me
£100 on condition that, twenty-one days afterwards, 1 shall pay the same
amount to a person in London, then whatever interest I can make of the
money during the twenty-one days, will be my profit. This is a fair represen¬
tation of the operations of banking, and of the way in which a banking capital
is created by means of deposits, notes, and bills" (p. 117). “The profits of a
banker are generally in proportion to the amount of his banking or borrowed
capital.... To ascertain the real profit of a bank, the interest upon the in¬
vested capital should be deducted from the gross profit, and what remains
is the banking profit” (p. 118). “The advances of bankers to their customers
are made with other people's money" (p. 146). “Precisely those bankers who
do not issue notes, create a banking capital by the discounting of bills. They
render their discounts subservient to the increase of their deposits. The Lon¬
don bankers will not discount except for those houses who have deposit
accounts with them” (p. 119). “A party who has had bills discounted, and
has paid interest on tno whole amount, must leave some portion of that
amount in the hands of the banker without interest. By this means the banker
obtains more than the current rate of interest on tho money actually ad¬
vanced, and raises a banking capital to the amount of the balance left in
his hands" (pp. 119-20). Economising on reserve funds, deposits, cheques;
“Banks of deposit serve to economise the use of the circulating medium.
This is done upon the principle of transfer of titles.... Thus it is that banks
of deposit ... are enabled to settle a large amount of transactions with a
small amount of money. The money thus liberated, is employed by the banker
in making advances, by discount or otherwise, to his customers. Hence the
principle of transfer gives additional efficiency to the deposit system...”
(p. 123). “ft matters not whether the two parties, who have dealings with
each other, keep their accounts with the same banker or with different bank¬
ers; for, as the bankers exchange their cheques with each other at the clearing
house.... The deposit system might thus, by means of transfers, be carried
to such an extent as wholly to supersede the use of a metallic currency. Were
every man to keep a deposit account at a bank, and make all his payments
by cheques, money might be superseded, and cheques become the sole cir¬
culating medium. In this case, however, it must be supposed that tho banker
has the money in his hands, or the cheques would have no value” (p. 124).
Centralisation of local transactions in the hands of the banks is effected
1) through branch banks. Country banks have branch establishments in the
smaller towns of their district, and London banks in different districts of the
city. 2) Through agencies. “Each country banker employs a London agent to
pay his notes or bills ... and to receive sums that may be lodged by parties
residing in London for the use of parties residing in the country” (p. 127).
Each banker accepts the notes of others, but does not reissue thdm. In all
larger cities they come together once or twice a week and exchange their
notes. The balance is paid by a draft on London (p. 134). “It ia the object
of banking to give facilities to trade, and whatever gives facilities to trade
gives facilities to speculation. Trade and speculation are in some cases so
nearly allied, that it is impossible to say at what precise point trade ends
and speculation begins.... Wherever there are banks, capital is more readily

14—2494

406

DIVISION OF PROFIT

obtained, and at a cheaper rate. The cheapness of capital gives facilities to
speculation, just in the same way as the cheapness of beef and of beer gives
facilities to gluttony and drunkenness” (pp. 137, 138). “As banks of circu¬
lation always issue their own notes, it would seem that their discounting
business was carried on exclusively with this last description of capital,
but it is not so. It is very possible for a banker to issue his own notes for
all the bills he discounts, and yet nine-tenths of the bills in his possession
shall represent real capital. For, although in the first instance, the banker’s
notes are given for the bill, yet these notes may not stay in circulation until
the bill becomes due— the Dill may have three months to run, the notes
may return in three days” (p. 172). “The overdrawing of a cash credit ac¬
count is a regular matter of business; it is, in fact, the purpose for which the
cash credit has been granted.... Cash credits are granted not only upon per¬
sonal security, but also upon the security of the Public Funds” (pp. 174,
175). “Capital advanced, by way of loan, on the securities of merchandise,
would produce the same effects as if advanced in the discounting of bills.
If a party borrows £100 on the security of bis merchandise, it is the same
as though he had sold his merchandise for a £100 bill, and got it discounted
with the banker. Gy obtaining this advance he is enabled to hold over this
merchandise for a better market, and avoids a sacrifice which, otherwise,
he might be induced to make, in order to raise the money for urgent
purposes” (pp. 180-81).

The Currency Theory Reviewed, etc., pp. 62-63: “It is unquestionably
true-that the £1,000 which you deposit at A today may be reissued tomorrow,
and form a deposit at B. The day after that, reissued from B, it may form
a deposit at C ... and so on to inffnitude; and that the same £1,000 in money
may thus, by a succession of transfers, multiply itself into a sum of deposits
absolutely indefinite. It is possible, therefore, that nine-tenths of all the
deposits in the United Kingdom may have no existence beyond their record
in the books of the bankers who are respectively accountable for them....
Thus in Scotland, for instance, currency (mostly paper money at that) has
never exceeded £3 million, the deposits in the banks are estimated at £27
million.... Unless a run on the banks be made, the same £1,000 would, if
sent back upon its travels, cancel with the same facility a sum equally in¬
definite. As the same £1,000 with which you cancel your debt to a tradesman
today, may cancel his debt to the merchant tomorrow, the merchant’s debt
to the bank the day following, and so on without end; so the same £1,000
may pass from hand to hand, and bank to bank, and cancel any conceivable
sum of deposits. ”

[We have seen that Gilhart knew even in 1834 that “whatever
gives facilities to trade gives facilities to speculation. Trade and
speculation are in some cases so nearly allied, that it is impossible
to say at what precise point trade ends and speculation begins.”
The easier it is to obtain advances on unsold commodities, the
more such advances are taken, and the greater the temptation to
manufacture commodities, or dump already manufactured commod¬
ities in distant markets, just to obtain advances of money on
them. To what extent the entire business world of a country may
be seized by such swindling, and what it finally comes to, is amply
illustrated by the history of English business during 1845-47. It

CREDIT AND FICTITIOUS CAPITAL

407

shows us what credit can accomplish. Before passing on to the
following examples, a few preliminary remarks.

At the close of 1842 the pressure which English industry suffered
almost uninterruptedly since 1837, began to lift. During the fol¬
lowing two years foreign demand for English manufactured goods
increased still more; 1845 and 1846 marked a period of greatest
prosperity. In 1843 the Opium War had opened China to English
commerce. The new market gave a new impetus to the further
expansion of an expanding industry, particularly the cotton
industry. “How can we ever produce too much? We have to clothe
300 million people, ” a Manchester manufacturer said to this
writer at the time. But all the newly erected factory buildings,
steam-engines, and spinning and weaving machines did not suffice
to absorb the surplus-value pouring in from Lancashire. With the
same zeal as was shown in expanding production, people engaged
in building railways. The thirst for speculation of manufactur¬
ers and merchants at first found gratification in this field, and
as early as in the summer of 1844. Stock was fully underwritten,
i.e., so far as there was money to cover the initial payments. As
for the rest, time would show! But when further payments were
due— Question 1059, C. D. 1848/57, indicates that the capital
invested in railways in 1846-47 amounted to £75 million— recourse
had to be taken to credit, and in most cases the basic enterprises
of the firm had also to bleed.

And in most cases these basic enterprises were already over¬
burdened. The enticingly high profits had led to far more exten¬
sive operations than justified by the available liquid resources.
Yet there was credit — easy to obtain and cheap. The bank discount
rate stood low: l*/4to 2 */4% in 1844, less than 3% until October
1845, rising to 5% for a while (February 1846), then dropping
again to 3 llt% in December 1846. The Bank of England had
an unheard-of supply of gold in its vaults. All inland quotations
were higher than ever before. Why then allow this splendid oppor¬
tunity to escape? Why not go in for all one was worth? Why not
send all one could manufacture to foreign markets which pined
for English goods? And why should not the manufacturer himself
pocket the double gain arising from selling yarn and fabrics in
the Far East, and the return cargo in England?

Thus arose the system of mass consignments to India and China
against advance payments, and this soon developed into a system
of consignments purely for the sake of getting advances, as de¬
scribed in greater detail in the following notes, which led inevita¬
bly to overfiooding the markets and a crash.

14*

408

DIVISION OF PROFIT

The crash was precipitated by the crop failure of 1846. Eng¬
land, and particularly Ireland, required enormous imports of
foodstuffs, notably corn and potatoes. But the countries which
supplied them could be paid with the products of English in¬
dustry only to a very limited extent. Precious metals had to be
given out. Gold worth at least nine million was sent abroad.
Of this amount no less than seven and a half million came from
the treasury of the Bank of England, whose freedom of action on
the money-market was thereby considerably impaired. Other banks,
whose reserves were deposited with the Bank of England and were
practically identical with those of that Bank, were thus also com¬
pelled to curtail accommodation of money. The rapid and easy
flow of payments was obstructed, first here and there, then gen¬
erally. The banking discount rate, still 3 to 3l/2% in January
1847, rose to 7 % in April, when the first panic broke out. The situa¬
tion eased somewhat in the summer (6l/a%, 6%), but when the
new crop failed as well panic broke out afresh and even more vio¬
lently. The official minimum bank discount rose in October to 7
and in November to 10%; i.e., the overwhelming mass of bills
of exchange was discountable only at outrageous rates of interest,
or no longer discountable at all. The general cessation of pay¬
ments caused the failure of several leading and very many medium¬
sized and small firms. The Bank itself was in danger due to the
limitations imposed by the artful Bank Act of 1844. The govern¬
ment yielded to the general clamour and suspended the Bank Act
on October 25, thereby eliminating the absurd legal fetters im¬
posed on the Bank. Now it could throw its supply of bank-notes into
circulation without hindrance. The credit of these bank-notes
being in practice guaranteed by the credit of the nation, and thus
unimpaired, the money stringency was thus instantly and deci¬
sively relieved. Naturally, quite a number of hopelessly enmeshed
large and small firms failed nevertheless, but the peak of the crisis
was overcome, the banking discount dropped to 5% in Decem¬
ber, and in the course of 1848 a new wave of business activity
began which took the edge off the revolutionary movements on
the continent in 1849, and which inaugurated in the fifties an
unprecedented industrial prosperity, but then ended again — in
the crash of 1857. — F. E .]

I. A document issued by the House of Lords in 1848 deals with the colos
sal depreciation of government paper and bonds during the 1847 crisis.
According to it the depreciation of October 23, 1847, compared with the
level in February of the same year, amounted to:

CREDIT AND FICTITIOUS CAPITAL

409

On English government bonds . . £93,824,217
On dock and canal stock .... £1,358,288
On railway stock . £.19,579,820

Total . £114,762,325

II. With reference to the swindle in East Indian trade, in which drafts
were no longer drawn because commodities were being bought, but rather
commodities were bought to be able to make out discountable drafts con¬
vertible into money, the Manchester Guardian of November 24, 1847,
remarks:

Mr. A in London instructs a Mr. B to buy from the manufacturer C in
Manchester commodities for shipment to a Mr. D in East India. B pays C in
six months’ drafts to be made out by C on B. B secures himself by six months’
drafts on A. As soon as the goods are shipped A makes out six months’ drafts
on D against the mailed bill of lading. ‘The shipper and the co-signee were
thus both put in possession of funds— months before they actually paid
for the goods; and, very commonly, these bills were renewed at maturity,
on pretence of affording time for the returns in a'long trade.’ Unfortunately,
losses by such a trade, instead of leading to its contraction, led directly to
its increase. The poorer men became, the greater need they had to purchase,
in order to make up, by new advances, the capital they had lost on the past
adventures. Purchases thus became, not a question of supply and demand,
but the most important part of the finance operations of a firm labouring
under difficulties. But this is only one side of the picture. What took place
in reference to the export of goods at home, was taking place in the purchase
and shipment of produce abroad. Houses in India, who had credit to pass
their bills, were purchasers of sugar, indigo, silk, or cotton— not because
the prices advised from London by the last overland mail promised a profit
on tne prices current in India, but because former drafts upon the London
house would soon fall due, and must be provided for. What way so simple
as to purchase a cargo of sugar, pay for it in bills upon the London house
at ten months’ date, transmit the shipping documents by the overland mail;
and, in less than two months, the goods on the high seas, or perhaps not yet
passed the mouth of the Hoogly, were pawned in Lombard Street — putting
the London house in funds eight months before the drafts against those goods
fell due. And all this went on without interruption or difficulty, as long
as bill-brokers had abundance of money ‘at call,’ to advance on bills of
lading and dock warrants, and to discount, without limit, the bills of India
houses drawn upon the eminent firms in' Mincing Lane.”

[This fraudulent procedure remained in vogue so long as goods to and
from India had to round the Cape in sailing vessels. But ever since they
are being shipped in steamboats via the Suez Canal this method of fabricating
fictitious capital has been deprived of its basis — the long freight voyage. And
ever since tne telegraph informs the English businessman about the Indian
market and the Indian merchant about the English market, on the same
day this method has become totally impracticable. — F.E.]

III. The following is taken from the quoted Report on Commercial Dis¬
tress, 1847-48: “In the last week of April 1847, the Bank of England advised
the Royal Bank of Liverpool that it would thereafter reduce its discount
business with the latter bank by one-half. The announcement operated with
peculiar hardship on this account, that the payments into Liverpool had
latterly been much more in bills than in cash; and the merchants who gener-

DIVISION OF PROFIT

410

ally brought to the Bank a large proportion of cash with which to pay their
acceptances, had latterly been able to bring only bills which they had
received for their cotton and other produce, and that increased very rapidly as
the difficulties increased.... The acceptances ... which the Bank had to pay
for the merchants, were acceptances drawn chiefly upon them from abroad,
and they have been accustomed to meet those acceptances by whatever
payment they received for their produce.... The bills that the merchants
Drought ... in lieu of cash, which they usually brought ... were of various
dates, and of various descriptions; a considerable number of them were
bankers' bills, of three months’ date, the large bulk being cotton bills. These
bills of exchange, when bankers' bills, were accepted by London bankers,
and by merchants in every trade that we could mention— the Brazilian, the
American, the Canadian, the West Indian.... The merchants did not draw
upon each other; but the parties in the interior, who had purchased produce
from the merchants, remitted to the merchants bills on London bankers,
or bills on various parties in London, or bills upon anybody. The announ¬
cement of the Bank of England caused a reduction of the maturity terms of
bills drawn against sales of foreign products, frequently extending to over
three months” (pp. .26, 27).

The period of prosperity in England from 1844 to 1847, was, as described
above, connected with the first great railway swindle. The above-named
report makes the following reference to the effect of this swindle on business
in general: In April 1847 “almost all mercantile houses had begun to starve
their business more or less ... by taking part of their commercial capital
for railways ” (p. 42). “Loans were made on railway shares at a high rate of
interest, say, 8%, by private individuals, by bankers and by fire-offices”
(p. 66). “Loans to so great an extent by commercial houses to railways induc¬
ed them to lean too much upon banks by the discount of paper, whereby
to carry on their commercial operations” (p. 67). (Question:) “Should you
say that the railway calls had had a great effect in producing the pressure
which there was” (on the money-market) “in April and October” (1847)? —
(Answer:) “I should say that they had had hardly any effect at all in produc¬
ing the pressure in April; I should imagine that up to April, and up, perhaps,
to the summer, they had increased the power of bankers in some respects
rather than diminished it; for the expenditure had not been nearly so rapid
as the calls; the consequence was, that most of the hanks had rather a large
amount of railway money in their hands in the beginning of the year. ” (This
is corroborated in numerous statements made by bankers in C. D. 1848-57.)
“In the summer that melted gradually away, and on the 31st of December
it was materially less. One cause ... of the pressure in October was the
gradual diminution of the railway money in the bankers’ hands; between the
22nd of April and the 31st of December the railway balances in our hands
were reduced one-third; and the railway calls have also had this effect ...
throughout the Kingdom; they have been gradually draining the deposits
of bankers” (pp. 43, 44).— Samuel Gurney (head of the ill-famed firm of
Overend, Gurney and Co.) similarly says: “During the year 1846 ... there
had been a considerable demand for capital, for tbe establishment of rail¬
ways ... but it did not increase the value of money _ There was a conden¬

sation of small sums into large masses, and those large masses were used
in our market; so that, upon the whole, the effect was to throw more money
into the money-market of the City than to take it out” [p. 159],

A. Hodgson, Director of the Liverpool Joint-Stock Bank, shows how
much bills of exchange may constitute a reserve for bankers: “It has been

CREDIT AND FICTITIOUS CAPITAL

411

our habit to keep at least nine-tenths of all our deposits, and all money we
have of other persons, in our bill case, in bills that are falling due from day
to day ... so much so, that during the time of the run, the bills falling due
were almost equal to the amount of the run upon us day by day” (p. 53).

Speculative bills. — “5092. Who were those bills (against sold cotton)
generally accepted by?"— (R. Gardner, the cotton manufacturer repeatedly
mentioned in this work:) 'Produce brokers: a person buys cotton, and places
it in the hands of a broker, and draws upon that broker, and gets the bills
discounted.” — ”5094. And they are taken to the banks at Liverpool, and
discounted?— Yes, and in other parts besides.... I believe if it had not been
for the accommodation thus granted, and principally by the Liverpool banks,
cotton would never have been so high last year as it was by l1/* d. or 2d. a
pound. "—“600. You have stated that a vast amount of bills were put in
circulation, drawn by speculators upon cotton brokers in Liverpool; does
that system extend to your advance on acceptances upon colonial and
foreign produce as well as on cotton? " (A. Hodgson, a Liverpool banker:) “It
refers to all kinds of colonial produce, but to cotton most especially.” —
“601. Do you, as a banker, discourage as far as you can that descrip¬
tion of paper? — We do not; we consider it a very legitimate description of
paper, when kept in moderation. This description of paper is frequently
renewed. ”

Swindling in the East Indian and Chinese Market, 1847. — Charles Turner
(head of one of the leading East Indian houses in Liverpool): “We are all
aware of the events which have taken place as regards the Mauritius trade,
and other trades of that kind. The brokers have been in the habit ... not
only of advancing upon goods after their arrival to meet the bills drawn
against those goods, which is perfectly legitimate, and uuon the bills of
lading ... but ... they have advanced upon the produce before it was shipped,
and in some cases before it was manufactured. Now, to speak of my own
individual instance: I have bought bills in Calcutta to tne extent of six
or seven thousand pounds in one particular instance; the proceeds of the
bills went down to the Mauritius, to help in the growth of sugar; those bills
came to England, and above half of them were protested; for when the ship¬
ments of sugar came forward, instead of being held to pay those bills, it
had been mortgaged to third parties... before it was shipped, in fact almost
before it was boiled” (p. 78). “Now manufacturers are insisting upon cash
but it does not amount to much, because if a buyer has any credit in Lon¬
don, he can draw upon the house, and get the bill discounted; he goes to
London, where discounts now are cheap; he gets the bill discounted, and
pays cash to the manufacturer.... It takes twelve months, at least, for the
shipper of goods to get his return from India ... a man with ten or fifteen
thousand pounds would go into the Indian trade; he would open a credit
with a house in London, to a considerable extent, giving that house one
per cent; he, drawing upon the house in London, on the understanding that
the proceeds of the goods that go out are to be returned to the house in Lon¬
don, but it being perfectly understood by both parties that the man in Lon¬
don is to be kept out of a cash advance; that is to say, in other words, the
bills are to be renewed till the proceeds come home. The bills were discounted
at Liverpool, Manchester ... or in London ... many of them lie in the Scotch
banks” (p. 79). — “786. There is one house which failed in London the other
day, and in examining their affairs, a transaction of this sort was proved
to have taken place; there is a house of business at Manchester, and another
at Calcutta; they opened a credit account with a house in London to the

412

DIVISION OF PROFIT

extent of 8200,000; that is to say, the friends of this house in Manchester,
who consigned goods to the East India House from Glasgow and from Man¬
chester, had the power of drawing upon the house in London to the extent
of 8200,000; at the same time, there was an understanding that the corre¬
sponding house in Calcutta were to draw upon the London house to the
extent of £200,000; with the proceeds of those bills sold in Calcutta, they
were to buy other bills, and remit them to the house in London, to take up
the first bills drawn from Glasgow.... There would have been 8600,000 of bills
created upon that transaction.”— “971. At present, if a house in Calcutta
purchase a cargo” (for England), “and give their own bills upon their cor¬
respondent in London in payment, and they send the bills of lading home
to this country, those bills of lading ... immediately become available to
them in Lombard Street for advances, and they have eight months’ use of
the money before their correspondents are called upon to pay. ”

IV. In 1848 a secret committee of the House of Lords investigated the
causes of the 1847 crisis. The evidence given to the committee was not pub¬
lished, however, until 1857 (Minutes of Evidence, taken before the Secret
Committee of the H. of L. appointed to inquire into the Causes of Distress,
etc., 1857; quoted as C.D. 1848/57). Here Mr. Lister, Director of the Union
Bank of Liverpool, testified, among other things, to the following:

“2444. In the spring of 1844 there was an undue extension of credit...
because a man transferred property from business into railways and was
still anxious to carry on the same extent of business. He probably first
thought that he could sell the railway shares at a profit and replace the money
in his business. Perhaps he found that could not be done, and he then got
credit in his business where formerly he paid in cash. There was an extension
of credit from that circumstance. ”

“2500. Were those bills ... upon which the banks had sustained a loss
by holding them, principally bills upon corn or bills upon cotton?— They
were bills upon all kinds of produce, corn and cotton and sugar, all foreign
produce of all descriptions. There was scarcely any thing perhaps with the
exception of oil, that did not go down. ”— “2506. A broker who accepts a
bill will not accept it without a good margin as to the value. ”

“2512. There are two kinds of bills drawn against produce; the first is
the original bill drawn abroad upon the merchant, who imports it.... The
bills which are drawn against produce frequently fall due before the produce
arrives. The merchant, therefore, when it arrives, if he has not sufficient
capital, has to pledge that produce with the broker till he has time to sell
that produce. Then a new species of bill is immediately drawn by the mer¬
chant in Liverpool upon the broker, on the security of that produce.... Then
it is the business of the banker to ascertain from the broker whether he
has the produce, and to what extent be bas advanced upon it. It is his
business to see that the broker has property to protect himself if he makes
a loss.”

“2516. We also receive bills from abroad.... A man buys a bill abroad
on England, and sends it to a house in England; we cannot tell whether that
bill is drawn prudently or imprudently, whether it is drawn for produce
or for wind. ”

“2533. You said that almost every kind of foreign produce was sold at
a great loss. Do you think that that was in consequence of undue speculation
in that produce? — It arose from a very large import, and there not being
an equal consumption to take it off. It appears that consumption fell off
a great deal. ”— “2534. In October produce was almost unsaleable. ”

CREDIT AND FICTITIOUS CAPITAL

413

How a general sauve qui peut develops at the height of a crisis is revealed
in the same report by a Srst-rate expert, the esteemed crafty Quaker, Samuel
Gurney, of Overend, Gurney and Co.: “1262. ... When a panic exists a
man does not ask himself what he can get for his bank-notes, or whether
he shall lose one or two per cent by selling his exchequer bills, or three
per cent. If he is under the influence of alarm he does not care for the
proGt or loss, but makes himself safe and allows the rest of the world to
do as they please. ”

V. Concerning the mutual satiation of the two markets Mr. Alexander,
a merchant in the East India trade, testiGes before the Committee of the.
Lower House on the Bank Act of 1857 (quoted as B.C. 1857): “4330. At the
present moment, if 1 lay out 6s. in Manchester, I get 5s. back in India;
if I lay out 6s. in India, 1 get 5s. back in London.” So that the Indian market
is, therefore, drugged by England, and the English by India. This was,
indeed, the case in the summer of 1857, barely ten years after the bitter
experience of 1847!

CHAPTER XXVI

ACCUMULATION OF MONEY-CAPITAL.
ITS INFLUENCE ON THE INTEREST RATE

“In England there takes place a steady accumulation of addition¬
al wealth, which has a tendency ultimately to assume the form of
money. Now next in urgency, perhaps, to the desire to acquire
money, is the wish to part with it again for some species of invest¬
ment that shall yield either interest or profit; for money itself,
as money, yields neither. Unless, therefore, concurrently with
this ceaseless influx of surplus-capital, there is a gradual and suf¬
ficient extension of the field for its employment, we must be sub¬
ject to periodical accumulations of money seeking investment, of
more or less volume, according to the movement of events. For a
long series of years, the grand absorbent of the surplus wealth of
England was our public debt.... As soon as in 1816 the debt reached
its maximum, and operated no longer as an absorbent, a sum of at
least seven-and-twenty million per annum was necessarily driven
to seek other channels of investment. What was more, various
return payments of capital were made.... Enterprises which entail
a large capital and create an opening from time to time for the
excess of unemployed capital ... are absolutely necessary, at least
in our country, so as to take care of the periodical accumulations
of the superfluous wealth of society, which is unable to find room
in the usual fields of application. ” {The Currency Theory Reviewed ,
London, 1845, pp. 32-34.) Of 1845 the same work says: “Within
a very recent period prices have sprung upwards from the lowest
point of depression.... Consols touch par.... The bullion in the
vaults of the Bank of England has ... exceeded in amount the treas¬
ure held by that establishment since its institution. Shares of
every description range at prices on the average wholly unprece¬
dented, and interest has declined to rates which are all but nomi¬
nal. If these be not evidences that another heavy accumulation of
unemployed wealth exists at this hour in England, that another
period of speculative excitement is at hand.” (Ibid., p. 36.)

ACCUMULATION OF MONEY-CAPITAL

415

“Although ... the import of bullion is no sure sign of gain upon
the foreign trade, yet, in the absence of any explanatory cause, it
does prima facie represent a portion of it." (J. G. Hubbard, The
Currency and the Country, London, 1843, pp. 40-41.) “Suppose ...
that at a period of steady trade, fair prices ... and full, but not
redundant circulation, a deficient harvest should give occasion for
an import of corn, and an export of gold to the value of five
million. The circulation [meaning, as we shall presently see, idle
money-capital rather than means of circulation — F. E.\ would
of course be reduced by the same amount. An equal quantity of
the circulation might still be held by individuals, but the deposits
of merchants at their bankers, the balances of bankers with their
money-broker, and the reserve in their till, will all be diminished,
and the immediate result of this reduction in the amount of unem¬
ployed capital will be a rise in the rate of interest. I will assume
from 4 per cent to 6. Trade being in a sound state, confidence
will not be shaken, but credit will be more highly valued. ” (Ibid.,
p.42.) “But imagine ... that all prices fall.... The superfluous cur¬
rency returns to the bankers in increased deposits — the abundance
of unemployed capital lowers the rate of interest to a minimum,
and this state of things lasts until either a return of higher prices or a
more active trade call the dormant currency into service, or until
it is absorbed by investments in foreign stocks or foreign goods”
(P- 68).

The following extracts are also taken from the parliamentary
Report on Commercial Distress, 1847-48. —Owing to the crop
failure and famine of 1846-47 large-scale imports of foodstuffs
became necessary. “These circumstances caused the imports of
the country to be very largely in excess over ... exports ... a consid¬
erable drain upon the banks, and an increased application to the
discount brokers ... for the discount of bills.... They began to
scrutinise the bills.... The facilities of houses then began to be
very seriously curtailed, and the weak. houses began to fail. Those
houses which ... relied upon their credit... went down. This
increased the alarm that had been previously felt; and the bankers
and others finding that they would not rely with the same degree
of confidence that they had previously done upon turning their
bills and other money securities into bank-notes, for the purpose
of meeting their engagements, still further curtailed their facili¬
ties, and in many cases refused them altogether; they locked up
their bank-notes, in many instances to meet their own engagements;
they were afraid of parting with them.... The alarm and confusion
were increased daily; and unless Lord John Russell .... had issued

416

DIVISION OP PROFIT

the letter to the Bank ... universal bankruptcy would have been
the issue” (pp. 74-75). Russell’s letter suspended the Bank Act.—
The previously mentioned Charles Turner testifies: “Some houses
had large means, but not available. The whole of their capital
was locked up in estates in the Mauritius, or indigo factories, or
sugar factories. Having incurred liabilities to the extent of
£500,000 or £600,000 they had no available assets to pay their
bills, and eventually it proved that to pay their bills they were
entirely dependent upon their credit” (p. 81). The aforementioned
S. Gurney said [1664]: “At present (1848) there is a limitation of
transaction and a great superabundance of money.” — “1763. I do
not think it was owing to the want of capital; it was owing to the
alarm that existed that the rate of interest got so high.”

In 1847 England paid at least £9 million gold to foreign coun¬
tries for imported foodstuffs. Of this amount £7 million came
from the Bank of England and l1/i million from other sources
(p. 245). — Morris, Governor of the Bank of England: “The public
stocks in the country and canal and railway shares had already
by the 23rd of October 1847 been depreciated in the aggregate to
the amount of £114,752,225” (p. 312). Again Morris, when ques¬
tioned by Lord G. Bentinck: “Are you not aware that all property
invested in stocks and produce of every description was depreciated
in the same way; that raw cotton, raw silk and unmanufactured
wool were sent to the continental the same depreciated price...
and that sugar, coffee and tea were sacrificed as at forced sales? —
It was ... inevitable that the country should make a considerable
sacrifice for the purpose of meeting the efflux of bullion which had
taken place in consequence of the large importation of food.” —
“Do not you think it would have been better to trench upon the
£8,000,000 lying in the coffers of the Bank than to have endeav¬
oured to get the gold back again at such a sacrifice? — No, I do not.” —
Now to the commentaries on such heroism. Disraeli questions
Mr. W. Cotton, a Director and former Governor of the Bank of
England: “What was the rate of dividend paid to the Bank pro¬
prietors in 1844? — It was 7 per cent for the year.” — “What is
the dividend ... for 1847? — Nine per cent.” — “Does the Bank
pay the income tax for its proprietors in this year?— It does.” —
“Did it do so in 1844?— It did not.”83 — “Then this Bank Act (of

•• In other words, formerly they first fixed the dividend, and then deduct¬
ed the income tax as the dividend was paid to the individual stockholder;
after 1844, however, the Bank first paid the income tax on its total profit,
and then paid the dividend “free of income tax.” The same nominal percent¬
ages are, therefore, higher in the latter case by the amount of the tax. — F . E.

ACCUMULATION OF MONEY-CAPITAL

417

1844) has worked very well for the proprietors?... The result is,
that since the passing of the Act, the dividend to the proprietors
has been raised from 7 per cent to 9 per cent, and the income tax,
that previously to the Act was paid by the proprietors, is now
paid by the Bank? — It is so." (Nos. 4356-61.)

Mr. Pease, a country banker, had the following to say concern¬
ing hoarding in banks during the crisis of 1847: “4605. As the Bank
was obliged still to raise its rate of interest, every one seemed
apprehensive; country bankers increased the amount of bullion in
their hands, and increased their reserve of notes, and many of us
who were in the habit of keeping, perhaps, a few hundred pounds
of gold and bank-notes, immediately laid up thousands in our
desks and drawers, as there was an uncertainty about discounts,
and about our bills being current in the market, a general hoarding
ensued.” A member of the Committee remarks: “4691. Then,
whatever may have been the cause during the last 12 years, the
result has been rather in favour of the Jew and money-dealer, than
the productive classes generally.”

How much a money-dealer takes advantage of times of crisis
is revealed by Tooke: “In the hardware districts of Warwickshire
and Staffordshire, a great many orders for goods were declined to
be accepted in 1847, because the rate of interest which the manu¬
facturer had to pay for discounting his bills more than absorbed
all his profit” (No. 5451).

Let us now take another parliamentary report cited earlier:
Report of Select Committee on Bank Acts, communicated from
the Commons to the Lords, 1857 (quoted further as B. C. 1857).
In it Mr. Norman, Director of the Bank of England and a leading
figure among the champions of the Currency Principle, is interro¬
gated as follows:

“3635. You stated, that you consider that the rate of interest
depends, not upon the amount of notes, but upon the supply and
demand of capital. Will you state what you include in ‘capital,’
besides notes and coin? — I believe that the ordinary definition
of ‘capital’ is commodities or services used in production.” —
“3636. Do you mean to include all commodities in the word ‘cap¬
ital’ when you speak of the rate of interest? — All commodities
used in production.” — “3637. You include all that in the word
‘capital,’ when you speak of what regulates the rate of interest? —
Yes. Supposing a cotton manufacturer to want cotton for his fac¬
tory, the way in which he goes to work to obtain it is, probably,
by getting an advance from his banker, and with the notes so ob¬
tained he goes to Liverpool, and makes a purchase. What he really

418

DIVISION OF PROFIT

wants is the cotton; he does not want the notes or the gold, except
as a means of getting the cotton. Or he may want the means of
paying his workmen; then again, he borrows the notes, and he
pays the wages of the workmen with the notes; and the workmen,
again, require food and lodging, and the money is the means of
paying for those. ”—“3638. But interest is paid for the money?—
It is, in the first instance; but take another case. Supposing he
buys the cotton on credit, without going to the bank for an ad¬
vance, then the difference between the ready-money price and
the credit price at the time at which he is to pay for it is the
measure of the interest. Interest would exist if there was no money
at all. ”

This self-complacent rubbish is quite fitting for this pillar of the
Currency Principle. First, the brilliant discovery that bank-notes
or gold are means of buying something, and that they are not bor¬
rowed for their own sake. And this is advanced to explain that
the rate of interest is regulated — but by what? By the demand and
supply of commodities, which heretofore was known to regulate
only the market-prices of commodities. However, very different
rates of interest are compatible with the same market-prices of
commodities.— But now this cunning. He is confronted with the
correct remark: “But interest is paid for the money, ” which, of
course, contains the implication: “What has interest received by
the hanker, who does not deal in commodities at all, to do with
these commodities? And do not manufacturers receive money at
the same rate of interest, although they invest it in widely differ¬
ent markets, hence in markets with widely different conditions of
demand and supply for the commodities used in production?” All
that this celebrated genius has to say in reply to these questions
is that if the manufacturer buys cotton on credit “the difference
between the ready-money price and the credit price at the time at
which he is to pay for it is the measure of the interest. ” Quite the
contrary. The prevailing rate of interest whose regulation the great
intellect Norman was asked to explain is the measure of the dif¬
ference between the cash price and the credit price until payment is
due. First the cotton is to be sold at its cash price, and this is de¬
termined by the market-price, itself regulated by the state of sup¬
ply and demand. Say the price = £l,000. This concludes the transac¬
tion between the manufacturer and the cotton broker so far as
buying and selling is concerned. Now comes a second transaction.
This is one between lender and borrower. The value of £1,000 is
advanced to the manufacturer in cotton, and he has to repay it in
money, say, in three months. And three months’ interest for

ACCUMULATION OF MONEY-CAPITAL

419

£1,000, determined by the market rate of interest, makes up the
extra charge over and above the cash price. The price of cotton is
determined by supply and demand. But the price of the advanced
value of cotton, of £1,000 advanced for three months, is determined
by the rate of interest. And this fact, that cotton is thus trans¬
formed into money-capital, proves to Mr. Norman that interest
would exist even if there had been no money. If there were no
money at all, there would certainly be no general rate of
interest.

There is, to begin with, a vulgar conception of capital as “com¬
modities used in production. ” In so far as these commodities serve
as capital, their value as capital, as distinct from their value as
commodities, is expressed in the profit which is derived from their
productive or mercantile employment. And the rate of profit
under all circumstances has something to do with the market-price
of the purchased commodities and with their supply and demand,
but is determined by entirely different circumstances. And there is
no doubt that the interest rate is generally limited by the rate of
profit. But Mr. Norman should tell us just how this limit is
determined. And it is determined by the supply and demand of
money-capital as distinguished from the other forms of capital. It
could be further asked: How are demand and supply of money-
capital determined? It is doubtlessly true that a tacit connection
exists between the supply of material capital and the supply of
money-capital, and, likewise, that the demand of industrial capi¬
talists for money-capital is determined by conditions of actual
production. Instead of enlightening us on this point, Norman offers
us the sage opinion that the demand for money-capital is not iden¬
tical with the demand for money as such; and this sagacity alone,
because he, Overstone, and the other Currency prophets, constantly
have pricks of conscience since they are striving to make capital
out of means of circulation as such through the artificial inter¬
vention of legislation, and to raise the interest rate.

Now to Lord Overstone, alias Samuel Jones Loyd, as he is asked
to explain why he takes 10% for his “money” because “capital” is
so scarce in his country.

“3653. The fluctuations in the rate of interest arise from one of
two causes: an alteration in the value of capital” (excellent!
Value of capital, generally speaking, signifies precisely the rate of
interest! A change in the rate of interest is thus made to spring from
a change in the rate of interest. “Value of capital,” as we have
shown elsewhere, is never conceived otherwise in theory. Or else,
if Lord Overstone means the rate of profit by the phrase “value of

420

DIVISION OF PROFIT

capital ”, then the profound thinker returns to the notion that the
interest rate is regulated by the rate of profit!) “or an alteration in
the amount of money in the country. All great fluctuations of
interest, great either in their duration or in the extent of the fluc¬
tuation, may be distinctly traced to alterations in the value of cap¬
ital. Two more striking practical illustrations of that fact cannot
be furnished than the rise in the rate of interest in 1847 and dur¬
ing the last two years (1855-56); the minor fluctuations in the rate
of interest, which arise from an alteration in the quantity of money,
are small both in extent and in duration. They are frequent, and
the more rapid and frequent they are, the more effectual they are
for accomplishing their destined purpose”, which is to enrich bank¬
ers like Overstone. Friend Samuel Gurney expresses it very naively
before the Committee of Lords, C. D. 1848 (1857): “1324. Do you
think that the great fluctuations in the rate of interest which have
taken place in the last year are advantageous or not to bankers or
dealers in money?— I think they are advantageous to dealers in
money. All fluctuations in trade are advantageous to the knowing
man.” — “1325. May not the banker suffer eventually from the
high rates of interest, by impoverishing his best customers? — No;
I do not think it has that effect perceptibly.” — Voil'a ce que
parler veut dire.*

We shall eventually return to the influence of the quantity of
available money on the rate of interest. But it is to be noted right
here that Overstone again makes a quid pro quo. The demand for
money-capital in 1847 (before October there was no anxiety over
money stringency, or the “quantity of money,” as he called it)
increased for various reasons, such as rising prices for corn and cot¬
ton, lack of buyers of sugar due to over-production, railway specu¬
lation and the crash, overcrowding of foreign markets with cotton
goods, and the forced export to, and import from, India for the
purpose of speculation in bills of exchange, which was described
above. All these things, over-production in industry and under¬
production in agriculture— in other words, greatly differing causes
— gave rise to an increased demand for money-capital, i.e., for
credit and money. The increased demand for money-capital had
its origin in the course of the productive process itself. But what¬
ever may have been the cause, it was the demand for money-
capital which made the interest rate, the value of money-capital,
climb. If Overstone means to say that the value of money-capital
rose because it rose, then it is tautology. But if, by “value of cap-

* This is what had to be said. — Ed.

ACCUMULATION OF MONEY-CAPITAL

421

ital, ” he means a rise in the rate of profit as the cause of the rise
in the rate of interest, we shall immediately see that this is wrong.
The demand for money-capital, and consequently the “value of
capital, ” may rise even though the profit may decrease; as soon as
the relative supply of money-capital shrinks, its “value” increases.
What Overstone wished to prove is that the crisis of 1847, and the
attendant high interest rate, had nothing to do with the “quantity
of money,” i. e., with the regulations of the Bank Act of 1844
which he had inspired; although it was, indeed, connected with
them, inasmuch as the fear of exhausting the bank reserve — a
creation of Overstone — contributed a money panic to the crisis
of 1847-48. But this is not the issue here. There was a dearth of
money-capital, caused by the excessive volume of operations com¬
pared to the available means and precipitated by the disturbance
in the reproduction process due to a crop failure, over-investment
in railways, over-production, particularly of cotton goods, swin¬
dling operations in trade with India and China, speculation, super¬
fluous sugar imports, etc. What the people, who had bought com
at 120 shillings per quarter, lacked when it fell to 60 shillings,
were the 60 shillings which they had overpaid and the correspond¬
ing credit for that amount in Lombard Street advances on the
corn. It was by no means a lack of bank-notes that prevented them
from converting their com into money at its old price of 120 shil¬
lings. The same applied to those who had imported an excess of
sugar, which became almost unsaleable. It applied likewise to the
gentlemen who had tied up their floating capital in railways and
relied on credit to replace it in their “legitimate” business. To
Overstone all this signifies a “moral sense of the enhanced value
of his money. ” But this enhanced value of money-capital corre¬
sponded directly on the other hand to the depreciated money-value
of real capital (commodity-capital and productive capital). The
value of capital in the one form rose because the value of capi¬
tal in the other fell. Overstone, however, seeks to identify these
two values of different sorts of capital in a single value of capital
in general, and he tries to do so by opposing both of them to a scar¬
city of the medium of circulation, of available money. But the
same amount of money-capital may be loaned with very different
quantities of the circulation medium.

Take his example of 1847. The official bank-rate stood at 3 to
3llt% in January; 4 to 4x/a% in February. In March it was gener¬
ally 4%. April (panic) 4 to 7 1/J%. May 5 to 5 1/s%, June, on the
whole, 5%. July 5%. August 5 to 51/a%. September 5% with
trifling variations of 51/*, 5 */*, 6%. October 5, S1^, 7%. Novem-

422

DIVISION OP PROFIT

ber 7-10%. December 7 to 5%. — In this case the interest rose be¬
cause profits decreased and the money-values of commodities fell
enormously. If, therefore, Overstone says here that the rate of in¬
terest rose in 1847 because the value of capital rose, he cannot
mean anything by value of capital but the value of money-capital,
and the value of money-capital is the rate of interest, and nothing
else. But later he showed the cloven hoof and identified the value
of capital with the rate of profit.

As for the high rate of interest paid in 1856, Overstone was in¬
deed ignorant of the fact that this was partially a symptom that
the credit jobbers were coming to the fore, who paid interest not
from their profit, but with the capital of others; he maintained just
a few months before the crisis of 1857 that “business is quite sound.”

He testified furthermore: [B. C. 1857] “3722. That idea of the
profits of trade being destroyed by a rise in the rate of interest is
most erroneous. In the first place, a rise in the rate of interest is
seldom of any long duration; in the second place, if it is of long
duration, and of great extent, it is really a rise in the value of
capital, and why does value of capital rise? Because the rate of
profit is increased.”— Here, then, we learn, at last, what the mean¬
ing of “value of capital” is. Furthermore, the rate of profit may be
high for a lengthy period, and yet the profit of enterprise may fall
and the rate of interest rise to a point where it swallows the greater
portion of the profit.

“3724. The rise in the rate of interest has been in consequence
of the great increase in the trade of the country, and the great rise
in the rate of profits; and to complain of the rise in the rate of in¬
terest as being destructive of the two things, which have been its
own cause, is a sort of logical absurdity, which one does not know
how to deal with. ” — This is just as logical as if he were to say:
The rise in the rate of profit has been in consequence of the rise in
commodity-prices by speculation, and to complain that the rise
in prices destroys its own cause, namely, speculation, is a logical
absurdity, etc. That anything can ultimately destroy its own cause
is a logical absurdity only for the usurer enamoured of the high
interest rate. The greatness of the Romans was the cause of their
conquests, and their conquests destroyed their greatness. Wealth
is the cause of luxury and luxury has a destructive effect on wealth.
The wiseacre! The idiocy of the present-day bourgeois world cannot
be better described than by the respect, which the “logic” of the
millionaire — the dunghill aristocrat— inspired in all England. Fur¬
thermore, if a high rate of profit and an expansion of business may
be causes of a high interest rate, a high rate of interest is by no

ACCUMULATION OF MONEY-CAPITAL

423

means therefore a cause of high profit. The question is precisely
whether such a high interest (as was actually discovered during
the crisis) continued or, what is more, reached its climax after
the high rate of profit had long gone the way of all flesh.

“3718. With regard to a great rise in the rate of discount, that is
a circumstance entirely arising from the increased value of capital,
and the cause of that increased value of capital I think any person
may discover with perfect clearness. I have already alluded to the
fact that during the 13 years this Act has been in operation,
the trade of this country has increased from £45,000,000 to
£120,000,000. Let any person reflect upon all the events which
are involved in that short statement; let him consider the enor¬
mous demand upon capital for the purpose of carrying on such a
gigantic increase of trade, and let him consider at the same time
that the natural source from which that great demand should be
supplied, namely, the anhual savings of this country, has for the
last three or four years been consumed in the unprofitable expendi¬
ture of war. I confess that my surprise is, that the rate of interest
is not much higher than it is; or, in other words, my surprise is,
that the pressure for capital to carry on these gigantic operations,
is not far more stringent than you have found it to be. ”

What an amazing jumble of words by our logician of usury! Here
he comes again with his increased value of capitall He seems to
think that this enormous expansion of the reproduction process,
hence accumulation of real capital, took place on one side, and
that on the other there existed a “capital”, for which there arose
an “enormous demand”, in order to accomplish this gigantic
increase of commerce! Was not this enormous increase of produc¬
tion an increase of capital itself, and if it created a demand, did
it not also create the supply, and, simultaneously, an increased
supply of money-capital? If the interest rate rose very high, then
merely because the demand for money-capital increased still more
rapidly than its supply, which implies, in other words, that with
the expansion of industrial production its operation on a credit
basis expanded as well. That is to say, the actual industrial ex¬
pansion caused an increased demand for “accommodation,” and
the latter demand is evidently what our banker means by the “enor¬
mous demand for capital. ” It was surely not the expansion of
this demand for capital alone, which raised the export business
from £45 to £120 million. And furthermore, what does Overstone
mean when he says that the country’s annual savings swallowed
by the Crimean War form the natural source of supply for this big
demand? In the first place, how did England achieve accumulation

424

DIVISION OF PROFIT

in 1792-1815, which was a far different war from the little Crimean
one? In the second place, if the natural source was dry, from what
source did capital Dow at all? It is well known that England did
not request loans from foreign countries. Yet if there is an artifi¬
cial source besides the natural one, it would have been best for a
nation to utilise the natural source in war and the artificial one in
business. But if only the old money-capital was available, could
it double its effectiveness through a high rate of interest? Mr.
Overstane evidently thinks that the country’s annual savings
(which, however, were supposed to have been consumed in this
case) are converted only into money-capital. But if no real accu¬
mulation, i.e., expansion of production and augmentation of the
means of production, had taken place, what good would there be
from the accumulation of debtor’s money claims on this production?

The increase in the “value of capital” springing from a high rate
of profit is identified by Overstone with an increase caused by a
greater demand for money-capital. This demand may climb for rea¬
sons quite independent of the rate of profit. He himself cites the
example of its rise in 1847 as a result of the depreciation of real
capital. Depending on what suits his purpose, he ascribes the value
of capital to real capital or money-capital.

The dishonesty of our banking lord, and his narrow-minded
banker’s point of view with its didactic Davouring are further
revealed in the following: (3728. Question:) “You have stated that
the rate of discount is of no material moment you think to the
merchant; will you be kind enough to state what you consider the
ordinary rate of profit? ” — Mr. Overstone declares that it is “impos¬
sible” to answer this question. — “3729. Supposing the average
rate of profit to be, say, from 7 to 10%, a variation of from 2 to 7
or 8% in the rate of discount must materially affect the rate of
profit, must it not? ” (This question itself lumps together the rate
of profit of enterprise with the rate of profit, and. passes over the
fact that the rate of profit is the common source of interest and pro¬
fit of enterprise. The interest rate may leave the rate of profit
untouchea, but not the profit of enterprise. Overstone replied:)
“In the first place parties will not pay a rate of discount which
seriously interrupts their profits; they will discontinue their busi¬
ness rather than do that. ” (Yes, if they can do so without ruining
themselves. So long as their profit is high, they pay the discount
because they wish to, and when it is low, because they have to.)
“What is the meaning of discount? Why does a person discount a
bill?... Because he wants to obtain the command of a greater quan¬
tity of capital. ” (Halte-laf because he wants to anticipate the

ACCUMULATION OF MONEY-CAPITAL

425

return in money of his tied-up capital and to prevent his business
from stopping; because he must meet payments due. He demands
more capital only when business is good, or when he speculates
on another’s capital, though business may be bad. The discount
is by no means simply a device to expand business.) “And why does
he want to obtain the command of a greater quantity of cap¬
ital? Because he wants to employ that capital; and why does he
want to employ that capital? Because it is profitable to him to do
so; it would not be profitable to him to do so if the discount
destroyed his profit. ”

This smug logician assumes that bills of exchange are discounted
only for the purpose of expanding business, and that business is
expanded because it is profitable. The first assumption is wrong.
The ordinary businessman discounts, in order to anticipate the
money-form of his capital and thereby to keep his process of re¬
production in flow; not in order to expand his business or secure
additional capital, but in order to balance the credit he gives by
the credit he receives. And if he wants to expand his business on
credit, discounting bills will do him little good because it is merely
conversion of the money-capital which he already has in his
hands from one form into another; he will rather take a direct loan
for a longer period. The credit swindler will get his accommodation
bills discounted to expand his business activity, to cover one squal¬
id business deal by another; not to make profits but to obtain
possession of another’s capital.

After Mr. Overstone has thus identified discounting with bor¬
rowing additional capital (instead of with converting bills repre¬
senting capital into hard cash), he beats an instant retreat as soon
as the screws are applied to him.— (3730. Question:) “Merchants
being engaged in business, must they not for a certain period carry
on their operations in despite of any temporary increase in the
rate of discount?” — (Overstone:) "There is no doubt that in any
particular transaction, if a person can get his command of capital
at a low rate of interest rather than at a high rate of interest, taken
in that limited view of the matter, that is convenient to him.”—
But it is a very unlimited point of view, on the other hand, which
enables Mr. Overstone quite suddenly to understand only his,
Lanker’s capital, as “capital,” and to assume that the man who
discounts a bill of exchange with him is a man without capital,
just because his capital exists in the form of commodities, or
because the money-form of his capital is a bill of exchange, which
Mr. Overstone converts into another money-form.

3732. “With reference to the Act of 1844, can you state what has

426

DIVISION OF PROFIT

been about the average rate of interest in proportion to the amount
of bullion in the Bank; would it be a fact that when the amount
of bullion has been about £9,000,000 or £10,000,000 the rate of
interest has been 6 or 7 per cent, and that when it has been
£16,000,000, the rate of interest has been, say, from 3 to 4 per
cent? ” (The examiner wishes to press him to explain the rate of
interest, so far as it is influenced by the amount of bullion in the
Bank, on the basis of the rate of interest, so far as it is influenced
by the value of capital.) — “I do not apprehend that that is so...
but if it is, then I think we must take still more stringent measures
than those adopted by the Act of 1844, because if it be true that
the greater the store of bullion, the lower the rate of interest, we
ought to set to work, according to that view of the matter, to in¬
crease the store of bullion to an indefinite amount, and then we
should get the interest down to nothing.” — The examiner, Cayley,
unmoved by this poor joke, continues: “3733. If that be so, suppos¬
ing that £5,000,000 of bullion was to be restored to the Bank, in
the course of the next six months the bullion then would amount,
say, to £16,000,000, and supposing that the rate of interest was
thus to fall to 3 or 4 per cent, how could it be stated that that
fall in the rate of interest arose from a great decrease of the trade
of the country?— I said that the recent rise in the rate of interest,
not that the fall in the rate of interest, was closely connected with
the great increase in the trade of the country. ” — But what Cayley
says is this: If a rise of interest rate together with a contraction of
the gold reserve, is an indication of an expansion in business, then
a fall of the interest rate together with an expansion of the gold
reserve, must be an indication of a contraction of business. Over¬
stone has no answer to this. — (3736. Question:) “I observed you”
(in the text always “Your Lordship”) “to say that money was
the instrument for obtaining capital. ” (Precisely this is the mis¬
take, to conceive money as an instrument; it is a form of capital.)
“Under a drain of bullion (of the Bank of England) is not the great
strain, on the contrary, for capitalists to obtain money?” — (Over-
stone:) “No, it is not the capitalists, it is those who are not capi¬
talists, who want to obtain money and why do they want to obtain
money?... Because through the money they obtain the command
of the capital of the capitalist to carry on the business of the per¬
sons who are not capitalists. ” — Here he declares point-blank that
manufacturers and merchants are not capitalists, and that the capi¬
talist’s capital is only money-capital. — “3737. Are not the parties
who draw bills of exchange capitalists? — The parties who draw bills
of exchange may be, and may not be, capitalists.” — Here he is stuck.

ACCUMULATION OF MONEY-CAPITAL

427

He is then asked whether merchants’ bills of exchange represent
commodities which have been sold or shipped. He denies that
these bills represent the value of commodities in the same way
that a bank-note represents gold. (3740,3741.) This is somewhat
insolent.

“3742. Is it not the merchant’s object to get money?— No;
getting money is not the object in drawing the bill; getting money
is the object in discounting the bill. ” — Drawing bills of exchange
is converting commodities into a form of credit-money, just as dis¬
counting bills of exchange is converting this credit-money into an¬
other, namely bank-notes. At any rate, Mr. Overstone admits here
that the purpose of discounting is to obtain money. A while ago he
said that discounting was a way not of converting capital from one
form into another, but of obtaining additional capital.

“3743. What is the great desire of the mercantile community
under pressure of panic, such as you state to have occurred in 1825,
1837 and 1839; is their object to get possession of capital or the
legal tender? — Their object is to get the command of capital to
support their business. ” — Their purpose is to obtain means of pay¬
ment for due bills of exchange on themselves, on account of the
prevailing lack of credit, so that they will not have to let their
commodities go below price. If they have no capital at all them¬
selves, they receive it along with the means of payment, because they
receive value without an equivalent. The urge to obtain money as
such consists always in the wish to convert value from the form of
commodities or creditor’s claims into the form of money. Hence,
even aside from the crises, the great difference between borrowing
capital and discount, the latter being a mere conversion of money
claims from one form into another, or into real money.

[I take the liberty at this point in my capacity of editor to inter¬
polate a few remarks.

With respect to Norman, as well as Loyd-Overstone, the banker
is always the one who “advances capital” to others, and his custom¬
ers are those who demand “capital” from him. Thus, Overstone
says that people have bills of exchange discounted through him,
“because they wish to obtain the command of capital” (3729),
and that it is pleasant for such people if they can “get command of
capital at a low rate of interest” (3730). “Money is the instrument
for obtaining capital” (3736), and during a panic the great desire
of the mercantile community is to “get the command of capital”
(3743). For all of Loyd-Overstone ’s confusion over what capital
is, it is at least clear that he designates what the banker gives to
his client as capital, as a capital which the client did not formerly

428

DIVISION OF PROFIT

possess, but which was advanced to him to supplement what he
already possessed.

The banker has become so accustomed to act as distributor
(through loans) of the social capital available in money-form
that he considers every function whereby he hands out money, as
loaning. All the money he pays out appears to him as a loan. If
the money is directly loaned, this is literally true. If it is invested
in the bill-discounting business, it is in fact advanced by himself
until the bill becomes due. The notion thus grows on him that all
the payments he makes are advances; furthermore, that they are
advances not merely in the sense that every investment of money
with the object of deriving interest or profit, is economically
considered an advance of money which the owner of money con¬
cerned, in his capacity of private individual, makes to himself
in his capacity as entrepreneur, but advances in the definite sense
that the banker lends his client a sum of money which augments
the capital already at the latter’s disposal.

It is this conception, which, transferred from the banker’s
office to political economy, has created the confusing controversy,
whether that which the banker places at his client’s disposal in
hard cash is capital or mere money, a medium of circulation, or
currency. To decide this— fundamentally simple— controversy,
we must put ourselves in the place of a bank client. It all depends
on what this customer requests and receives.

If the bank allows its client a loan simply on his personal credit,
without any security on his part, then the matter is clear. He then
certainly receives an advance of definite value as a supplement to
the capital he has already invested. He receives it in the form of
money; hence, not merely money, but also money -capital.

If, on the other hand, he receives the advance against securities,
etc., then it is an advance in the sense of money paid to him on
condition that he pay it back. But it is not an advance of capital.
For the securities also represent capital, and a larger amount at
that than the advance. The recipient therefore receives less capital-
value than he deposits as security; this represents for him no acqui¬
sition of additional capital. He does not enter into the transaction
because he needs capital — he has that in his securities — but because
he needs money. Here we, therefore, have an advance of money ,
not of capital.

If the loan is granted by discounting bills, then even the form
of an advance disappears. Then it is purely a matter of buying and
selling. The bill passes by endorsement into the possession of the
bank, while the money passes into the possession of the client.

ACCUMULATION OP MONEY-CAPITAL

429

There is no question of any return payment on his part. If the client
buys hard cash with a bill of exchange or some similar instru¬
ment of credit, it is no more and no less an advance than were he
to buy cash money with his other commodities, such as cotton,
iron, or corn. Still less can this be called an advance of capital.
Every purchase and sale between one merchant and another is a
transfer of capital. But an advance of capital occurs only when
the transfer of capital is not reciprocal, but unilateral and for a
period of time. An advance of capital through discount can, there¬
fore, only occur when a bill is a speculative one, which does not
represent any sold commodities, and no banker will take such a
bill if he is aware of its nature. In the regular discounting business
the bank client does not, therefore, receive an advance, either of
capital or of money. What he receives is money for sold commodi¬
ties.

The cases in which the customer demands and receives capital
from a bank are thus clearly distinguished from those, in which
he merely receives an advance of money, or buys money from the
bank. And since least of all Mr. Loyd-Overstone ever advanced his
funds without collateral except on the rarest occasions (he was
the banker of my firm in Manchester), it is likewise evident that
his lyric descriptions of the great quantities of capital loaned by
generous bankers to manufacturers in need of capital are gross
inventions.

By the way, in Chapter XXXII Marx says essentially the same
thing: “The demand for means of payment is a mere demand for
convertibility into money, so far as merchants and producers have
good securities to offer; it is a demand for money-capital whenever
there is no collateral, so that an advance of means of payment
gives them not only the form of money but also the equivalent they
lack, whatever its form, with which to make payment. ” — And
again in Chapter XXXIII: “Under a developed system of credit,
with the money concentrated in the hands of bankers, it is they,
at least nominally, who advance it. This advance refers only to
money in circulation. It is an advance of circulation, not an ad¬
vance of capitals which it circulates. ” Mr. Chapman, who should
know, likewise corroborates this conception of the discounting
business: B. C. 1857: “The banker has the bill, the banker has
bought the bill.” Evid. Question 5139.

We shall, however, return to this subject in Chapter XXVIII. —
F.E.]

“3744. Will you be good enough to describe what you actually
mean by the term ‘capital’?” — (Overstone:) “Capital consists of

430

DIVISION OF PROFIT

various commodities, by means of which trade is carried on; there
is fixed capital and there is circulating capital. Your ships, your
docks, your wharves ... are fixed capital; your provisions, your
clothes, etc., are circulating capital.”

“3745. Is the country oppressed under a drain of bullion? —
Not in the rational sense of the word. ” (Then comes the old Ricar¬
dian theory of money.)... “In the natural state of things the money
of the world is distributed amongst the different countries of the
world in certain proportions, those proportions being such that
under that distribution (of money) the intercourse between any one
country and all the other countries of the world jointly will be an
intercourse of barter; but disturbing circumstances will arise to
affect that distribution, and when those arise, a certain portion
of the money of any given country passes to other countries. ” —
“3746. Your Lordship now uses the term ‘money.’ I understood
you before to say that it was a loss of capital. — That what was a
loss of capital? ’’ — “3747. The export of bullion? — No, I did not say
so. If you treat bullion as capital, no doubt it is a loss of capital;
it is parting with a certain proportion of those precious metals
which constitute the money of the world.” — “3748. I understood
Your Lordship to say that an alteration in the rate of discount
was a mere sign of an alteration in the value of capital? — I
did.” — “3749. And that the rate of discount generally alters with
the state of the store of bullion in the Bank of England? — Yes,
but I have already stated that the fluctuations in the rate of in¬
terest, which arise from an alteration in the quantity of money”
(what he therefore means here is the quantity of actually existing
gold) “in a country, are very small. ”

“3750. Then, does Your Lordship mean that there is a less capi¬
tal than there was, when there is a more continuous yet temporary
increase in the rate of discount than usual? — Less, in one sense
of the word. The proportion between capital and the demand for it
is altered; it may be by an increased demand, not by a diminution
of the quantity of capital.” (But a moment ago it was capital=mon-
ey or gold, and a little before that he had explained the rise in
interest rate by a high rate of profit, due to an expansion rather
than a contraction of business or capital.)

“3751. What is the capital which you particularly allude to? —
That depends entirely upon what the capital is which each person
wants. It is the capital which the country has at its command for
conducting its business, and when that business is doubled, there
must be a great increase in the demand for the capital with which
it is to be carried on.” (This shrewd banker doubles first the busi-

ACCUMULATION OF MONEY-CAPITAL

431

ness activity and then the demand for capital with which it is to be
doubled. All he sees is his client, who asks Mr. Loyd for more cap¬
ital by which to double the volume of his business.) — “Capital is
like any other commodity” (but according to Mr. Loyd capital is
nothing but the totality of commodities), “it will vary in its price”
(hence, commodities change their price twice, one time as com¬
modities and the second as capital), “according to the supply and
demand. ”

“3752. The changes in the rate of discount are generally connect¬
ed with the changes in the amount of gold which there is in the
coffers of the Bank. Is it that capital to which Your Lordship
refers? — No.” — “3753. Can Your Lordship point to any instance
in which there has been a large store of capital in the Bank of Eng¬
land connected with a high rate of discount? — The Bank of En¬
gland is not a place for the deposit of capital, it is a place for
the deposit of money. ”—“3754. Your Lordship has stated that the
rate of interest depends upon the amount of capital; will you be
kind enough to state what capital you mean, and whether you can
point to any instance in which there has been a large store of bul¬
lion in the Bank and at the same time a high rate of interest? —
It is very probable (aha!) that the accumulation of bullion in the
Bank may be coincident with a low rate of interest, because a
period in which there is a diminished demand for capital” (namely,
money-capital; the period to which reference is made here, 1844
and 1845, was a period of prosperity) “is a period, during which, of
course, the means or instrument through which you command cap¬
ital may accumulate.” — “3755. Then you think that there is no
connection between the rate of discount and the amount of bullion
in the coffers of the Bank? — There may be a connection, but it is
not a connection of principle” (his Bank Act of 1844, however,
made it a principle of the Bank of England to regulate the inter¬
est rate by the quantity of bullion in its possession), “there may
be a coincidence of time.” — “3758. Do I rightly understand you
to say, that the difficulty of merchants in this country, under a
state of pressure, in consequence of a high rate of discount, is in
getting capital, and not in getting money?— You are putting two
things together which I do not join in that form; their difficulty is
in getting capital, and their difficulty also is in getting money....
The difficulty of getting money and the difficulty of getting capital
is the same difficulty taken in two successive stages of its progress.”
— Here the fish is caught in the net again. The first difficulty is
to discount a bill of exchange, or to obtain a loan against the se¬
curity of commodities. It is the difficulty of converting capital, ora

432

DIVISION OP PROFIT

commercial token of capital into money. And this difficulty is
manifested, among other things, in a high rate of interest. But as
soon as the money is obtained, what is the second difficulty? Does
anyone ever find any difficulty in getting rid of his money when
it is merely a matter of paying? And if it is a matter of buying, has
anyone ever had any difficulty in purchasing during times of cri¬
sis? And, for the sake of argument, should this refer to a specific
dearth in corn, cotton, etc., this difficulty could only appear in
the price of these commodities, not in the value of money-capital,
i.e., not in the rate of interest; and this difficulty is overcome, in
the final analysis, by the fact that our man now has the money
to buy them. ”

“3760. But a higher rate of discount is an increased difficulty of
getting money? — It is an increased difficulty of getting money,
but it is not because you want to have the money; it is only the
form” (and this form brings profit into the banker’s pocket) “in
which the increased difficulty of getting capital presents itself
according to the complicated relations of a civilised state. ”

“3763. (Overstone’s reply:) The banker is the go-between who
receives deposits on the one side, and on the other applies those
deposits, entrusting them, in the form of capital, to the hands of
persons, who, etc.”

At last we have what he means by capital. He converts money
into capital by “entrusting” it, less euphemistically, by loaning
it at interest.

After Mr. Overstone has stated that a change in the rate of dis¬
count is not essentially connected with a change in quantity of the
gold reserve in a bank, or in the quantity of available money, but
that there is at best only a coincidence in time, he repeats:

“3805. When the money in the country is diminished by a drain,
its value increases, and the Bank of England must conform to that
alteration in the value of money” (hence, the value of money as
capital-, in other words, the rate of interest, for the value of money
as money, compared with commodities, remains the same), “which
is meant by the technical term of raising the rate of interest. ”

“3819. I never confound those two.” — Meaning money and capi¬
tal, and for the simple reason that he never differentiated between
them.

“3834. The very large sum, which had to be paid” (for corn in
1847), “which was in point of fact capital, for the supply of the
necessary provisions of the country. ”

“3841. The variations in the rate of discount have no doubt a
very close relation to the state of the reserve ” (of the Bank of Eng-

ACCUMULATION OF MONEY-CAPITAL

433

land), “because the state of the reserve is the indicator of the in¬
crease or the decrease of the quantity of money in the country; and
in proportion as the money in the country increases or decreases,
the value of that money will increase or decrease, and the bank-
rate of discount will conform to that change.” — Thus, Overstone
admits here what he emphatically denied in No. 3755. — “3842.
There is an intimate connection between them. ” Meaning the quan¬
tity of bullion in the issue department, on the one hand, and the
reserve of notes in the banking department, on the other. Here he
explains the change in the rate of interest by the change in the
quantity of money. But this statement is wrong. The reserve may
shrink because the circulating money in the country increases.
This is the case when the public takes more notes and the hoard
of metal does not decrease. But in such case the interest rate rises,
because then the banking capital of the Bank of England is limited
by the Act of 1844. But he dare not mention this, because due to
this law the two departments have nothing to do with one another.

“3859. A high rate of profit will always create a great demand
for capital; a great demand for capital will raise the value of it. ” —
Here, at last, we have the connection between a high rate of profit
and a demand for capital as Overstone conceives it. Now, a high
rate of profit prevailed in, for example, 1844-45 in the cotton
industry, because raw cotton was cheap, and remained so, where¬
as the demand for cotton goods was strong. The value of capital
(and in an earlier statement Overstone calls capital that which
everyone needs in his business), in this case therefore the value
of raw cotton, was not increased for the manufacturer.... The high
rate of profit may have induced some cotton manufacturer to
obtain money on credit for the purpose of expanding his business.
Thereby his demand rose for money-capital, but for nothing else.

“3889. Bullion may or may not be money, just as paper may or
may not be a bank-note.”

“3896. Do I correctly understand Your Lordship that you give
up the argument, which you used in 1840, that the fluctuations in
the notes out of the Bank of England ought to conform to the
fluctuations in the amount of bullion? — I give it up so far as this...
that now with the means of information which we possess, the notes
out of the Bank of England must have added to them the notes
which are in the banking reserve of the Bank of England." — This
is superlative. The arbitrary provision that the Bank may make
out as many paper notes as it has gold in the treasury and 14 mil¬
lion more, implies, of course, that its issue of notes fluctuates with
the fluctuations of the gold reserve. But since the present “means

434

DIVISION OF PROFIT

of information which we possess” clearly showed that the mass of
notes, which the Bank can thus manufacture (and which the issue
department transfers to the banking department)— that this cir¬
culation between the two departments of the Bank of England,
fluctuating with the fluctuations of the gold reserve, does not deter¬
mine the fluctuations in the circulation of hank-notes outside the
Bank of England, then the latter— the real circulation — becomes a
matter of indifference to the bank administration, and the circu¬
lation between the two departments of the Bank, whose difference
from the real circulation is mirrored in the reserve, alone becomes
decisive. To the outside world this internal circulation is signifi¬
cant only because the reserve indicates how close the Bank is
approaching the legal maximum of its note issue, and how much its
clients can still receive from the banking department.

The following is a brilliant example of Overstone’s mala fides:

“4243. Does the quantity of capital, do you think, oscillate from
month to month to such a degree as to alter its value in the way
exhibited of late years in the oscillations in the rate of discount? —
The relation between the demand and the supply of capital may
undoubtedly fluctuate, even within short periods.... If France to¬
morrow put out a notice that she wishes to borrow a very large loan,
there is no doubt that it would immediately cause a great altera¬
tion in the value of money, that is to say, in the value of capital, in
this country.”

“4245. If France announces, that she wants suddenly, for any
purpose, 30 million's worth of commodities there will be a great
demand for capital, to use the more scientific and the simpler
term. ”

“4246. The capital, which France would wish to buy with her
loan, is one thing, and the money with which she buys it is another,
is it the money, which alters in value, or not? — We seem to be
reviving the old question, which I think is more fit for the cham¬
ber of a student than for this committee room. ” — And with this
he retires, but not into the chamber of a student.84

84 More on Overstone's confusion of terms in matters concerning capital
at the close of Chapter XXXII.- [F.E. ]

CHAPTER XXVII

THE ROLE OF CREDIT IN CAPITALIST PRODUCTION

The general remarks, which the credit system so far elicited
from us, were the following:

I. Its necessary development to effect the equalisation of the
rate of profit, or the movements of this equalisation, upon which
the entire capitalist production rests.

II. Reduction of the costs of circulation.

1) One of the principal costs of circulation is money itself,
being value in itself. It is economised through credit in three
ways.

A. By dropping away entirely in a great many transactions.

B. By the accelerated circulation of the circulating medium.86
This corresponds in part with what is to be said under 2). On the
one hand, the acceleration is technical; i.e., with the same magni-

“The average of notes in circulation during the year was, in 1812,
106,538,000 francs; in 1818, 101,205,000 francs; whereas the movement of the
currency, or the annual aggregate of disbursements and receipts upon all
accounts, was, in 1812, 2,837,712,000 francs; in 1818, 9,665,030,000 francs.
The activity of the currency in France, therefore, during the year 1818, as
compared with its activity in 1812, was in the proportion of three to one.
The great regulator of the velocity of circulation is credit.... This explains,
why a severe pressure upon the money-market is generally coincident with
a full circulation.” (The Currency Theory Reviewed, etc., p. 65.) — “Between
September 1833 and September 1843 nearly 300 banks were added to the vari¬
ous issuers of notes throughout the United Kingdom; the result was a re¬
duction in the circulation to the extent of two million and a half; it was
£36,035,244 at the close of September 1833, and 833,518,554 at the close of
September 1843.” (L. c., p. 53.) — “The prodigious activity of Scottish cir¬
culation enables it, with £100, to effect the same quantity of monetary
transactions, which in England it requires £420 to accomplish.” (L. c.,
p. 55 This last refers only to the technical side of the operation.)

436

DIVISION OF PROFIT

tude and number of actual turnovers of commodities for consump¬
tion, a smaller quantity of money or money tokens performs the
same service. This is bound up with the technique of banking.
On the other hand, credit accelerates the velocity of the meta¬
morphoses of commodities and thereby the velocity of money
circulation.

C. Substitution of paper for gold money.

2) Acceleration, by means of credit, of the individual phases of
circulation or of the metamorphosis of commodities, later the
metamorphosis of capital, and with it an acceleration of the proc¬
ess of reproduction in general. (On the other hand, credit helps
to keep the acts of buying and selling longer apart and serves
thereby as a basis for speculation.) Contraction of reserve funds,
which may be viewed in two ways: as a reduction of the circulat¬
ing medium, on the one hand, and, on the other, as a reduction
of that part of capital which must always exist in the form of
money.88

III. Formation of stock companies. Thereby:

1) An enormous expansion of the scale of production and of
enterprises, that was impossible for individual capitals. At the
same time, enterprises that were formerly government enterprises,
become public.

2) The capital, which in itself rests on a social mode of produc¬
tion and presupposes a social concentration of means of production
and labour-power, is here directly endowed with the form of
social capital (capital of directly associated individuals) as dis¬
tinct from private capital, and its undertakings assume the form
of social undertakings as distinct from private undertakings. It
is the abolition of capital as private property within the frame¬
work of capitalist production itself.

3) Transformation of the actually functioning capitalist into a
mere manager, administrator of other people's capital, and of the
owner of capital into a mere owner, a mere money-capitalist. Even
if the dividends which they receive include the interest and the
profit of enterprise, i.e., the total profit (for the salary of the man¬
ager is, or should be, simply the wage of a specific type of skilled
labour, whose price is regulated in the labour-market like that of
any other labour), this total profit is henceforth received only in
the form of interest, i.e., as mere compensation for owning capi-

*• "Before the establishment of the banks ... the amount of capital with¬
drawn for the purposes of currency was greater, at all times, than the actual
circulation of commodities required.” (Economist, 1845, p. 238.)

THE ROLE OF CREDIT

-437

tal that now is entirely divorced from the function in the actual
process of reproduction, just as this function in the person of the
manager is divorced from ownership of capital. Profit thus appears
(no longer only that portion of it, the interest, which derives its
justification from the profit of the borrower) as a mere appropria¬
tion of the surplus-labour of others, arising from the conversion of
means of production into capital, i.e., from their alienation vis-
a-vis the actual producer, from their antithesis as another’s prop¬
erty to every individual actually at work in production, from
manager down to the last day-labourer. In stock companies the
function is divorced from capital ownership, hence also labour
is entirely divorced from ownership of means of production and
surplus-labour. This result of the ultimate development of cap¬
italist production is a necessary transitional phase towards the
reconversion of capital into the property of producers, although
no longer as the private property of the individual producers, but
rather as the property of associated producers, as outright social
property. On the other hand, the stock company is a transition
toward the conversion of all functions in the reproduction process
which still remain linked with capitalist property, into mere
functions of associated producers, into social functions.

Before we go any further, there is still the following economi¬
cally important fact to be noted: Since profit here assumes the pure
form of interest, undertakings of this sort are still possible if
they yield bare interest, and this is one of the causes, stemming
the fall of the general rate of profit, since such undertakings,
in which the ratio of constant capital to the variable is so enor¬
mous, do not necessarily enter into the equalisation of the general
rate of profit.

[Since Marx wrote the above, new forms of industrial enter¬
prises have developed, as we know, representing the second and
third degree of stock companies. The daily growing speed with
which production may be enlarged in all fields of large-scale
industry today, is offset by the ever-greatcr slowness with which
the market for these increased products expands. What the for¬
mer turns out in months, can scarcely be absorbed by the latter
in years. Add to this the protective tariff policy, by which every
industrial country shuts itself off from all others, particularly from
England, and also artificially increases domestic production capac¬
ity. The results are a general chronic over-production, depressed
prices, falling and even wholly disappearing profits; in short,
the old boasted freedom of competition has reached the end of
its tether and must itself announce its obvious, scandalous

15—2494

438

DIVISION OF PROFIT

bankruptcy. And in every country this is taking place through the
big industrialists of a certain branch joining in a cartel for the
regulation of production. A committee fixes the quantity to be
produced by each establishment and is the final authority for
distributing the incoming orders. Occasionally even international
cartels were established, as between the English and German
iron industries. But even this form of association in production
did not suffice. The antagonism of interests between the indi¬
vidual firms broke through it only too often, restoring compe¬
tition. This led in some branches, where the scale of production
permitted, to the concentration of the entire production of that
branch of industry in one big joint-stock company under single
management. This has been repeatedly effected in America; in
Europe the biggest example so far is the United Alkali Trust,
which has brought all British alkali production into the hands
of a single business firm. The former owners of the more than
thirty individual plants have received shares for the appraised
value of their entire establishments, totalling about £5 million,
which represent the fixed capital of the trust. The technical
management remains in the same hands as before, but business
control is concentrated in the hands of the general management.
The floating capital, totalling about £1 million, was offered to
the public for subscription. The total capital is, therefore, £6
million. Thus, in this branch, which forms the basis of the whole
chemical industry, competition has been replaced by monopoly
in England, and the road has been paved, most gratifyingly,
for future expropriation by the whole of society, the nation. —
F.E.]

This is the abolition of the capitalist mode of production with¬
in the capitalist mode of production itself, and hence a self¬
dissolving contradiction, which prima facie represents a mere phase
of transition to a new form of production. It manifests itself as
such a contradiction in its effects. It establishes a monopoly in
certain spheres and thereby requires state interference. It repro¬
duces a new financial aristocracy, a new variety of parasites in the
shape of promoters, speculators and simply nominal directors;
a whole system of swindling and cheating by means of corporation
promotion, stock issuance, and stock speculation. It is private
production without the control of private property.

IV. Aside from the stock-company business, which represents
the abolition of capitalist private industry on the basis of the cap¬
italist system itself and destroys private industry as it expands
and invades new spheres of production, credit offers to the individ-

THE ROLE OF CREDIT

439

ual capitalist, or to one who is regarded a capitalist, absolute con¬
trol within certain limits over the capital and property of others,
and thereby over the labour of others.87 The control over social
capital, not the individual capital of his own, gives him control
of social labour. The capital itself, which a man really owns or is
supposed to own in the opinion of the public, becomes purely a
basis for the superstructure of credit. This is particularly true of
wholesale commerce, through which the greatest portion of the
social product passes. All standards of measurement, all excuses
more or less still justified under capitalist production, disappear
here. What the speculating wholesale merchant risks is social
property, not his own. Equally sordid becomes the phrase relat¬
ing the origin of capital to savings, for what he demands is that
others should save for him. [Just as all France recently saved
up one and a half billion francs for the Panama Canal swindlers.
In fact, a description of the entire Panama swindle is here cor¬
rectly anticipated, fully twenty years before it occurred. — F. E.\
The other phrase concerning abstention is squarely refuted by
his luxury, which is now itself a means of credit. Conceptions
which have some meaning on a less developed stage of capitalist
production, become quite meaningless here. Success and failure
both lead here to a centralisation of capital, and thus to expro¬
priation on the most enormous scale. Expropriation extends here
from the direct producers to the smaller and the medium-sized
capitalists themselves. It is the point of departure for the capi¬
talist mode of production; its accomplishment is the goal of this
production. In the last instance, it aims at the expropriation
of the means of production from all individuals. With the devel
opment of social production the means of production cease to he
means of private production and products of private production.

87 See, for instance, in the Timet the list of business bankruptcies in a
crisis year such as 1857 and compare the private property of those bankrupt
with the amount of their debts. “The truth is that the power of purchase
by persons having capital and credit is much beyond anything that those
who are unacquainted practically with speculative markets have any idea
of. ” (Tooke, Inquliy into the Currency Principle, p. 79.) “A person having the
reputation of capital enough for his regular business, and enjoying good
credit in his trade, if he takes a sanguine view of the prospect of a rise of
price of the article in which he deals, and is favoured by circumstances in
the outset and progress of his speculation, may effect purchases to an extent
perfectly enormous compared with his capital ” (ibid., p. 136). “Merchants,
manufacturers, etc., carry on operations much beyond those which the use
of their own capital alone would enable them to do.... Capital is rather the
foundation upon which a good credit is built than the limit of the transac¬
tions of any commercial establishment.” ( Economist , 1847, p. 333.)

15*

440

DIVISION OP PROFIT

and can thereafter be only, means of production in the hands
of associated producers, i.e., the latter’s social property, much
as they are their social products. However, this expropriation
appears within the capitalist system in a contradictory form,
as appropriation ol social property by a few; and credit lends
the latter more and more the aspect of pure adventurers. Since
property here exists in the form of stock, its movement and trans¬
fer become purely a result of gambling on the stock exchange,
where the little fish are swallowed by tho sharks and the lambs
by the stock-exchange wolves. There is antagonism against the
old form in the stock companies, in which social means of pro¬
duction appear as private property; but the conversion to the
form of stock still remains ensnared in the trammels of capital¬
ism; hence, instead of overcoming the antithesis between the
character of wealth as social and as private wealth, the stock
companies merely develop it in a new form.

The co-operative factories of the labourers themselves represent
within the old form the first sprouts of the new, although they
naturally reproduce, and must reproduce, everywhere in their
actual organisation all the shortcomings of the prevailing system.
But the antithesis between capital and labour is overcome within
them, if at first only by way of making the associated labourers
into their own capitalist, i.e., by enabling them to use the means
of production for the employment of their own labour. They
show how a new mode of production naturally grows out of an
old one, when the development of the material forces of produc¬
tion and of the corresponding forms of social production have
reached a particular stage. Without the factory system arising
out of the capitalist mode of production there could have been
no co-operative factories. Nor could these have developed without
the credit system arising out of the same mode of production.
The credit system is not only the principal basis for the gradual
transformation of capitalist private enterprises into capitalist
stock companies, but equally offers the means for the gradual
extension of co-operative enterprises on a more or less national
scale. The capitalist stock companies, as much as the co-opera¬
tive factories, should be considered as transitional forms from
the capitalist mode of production to the associated one, with
the only distinction that the antagonism is resolved negatively
in the one and positively in the other.

So far we have considered the development of the credit system
—and the implicit latent abolition of capitalist property — mainly
with reference to industrial capital. In the following chapters we

THE ROLE OF CREDIT

441

shall consider credit with reference to interest-bearing capital
as such, and to its effect on this capital, and the form it thereby
assumes; and there are generally a few more specifically economic
remarks still to be made.

But first this:

The credit system appears as the main lever of over-production
and over-speculation in commerce solely because the reproduction
process, which is clastic by nature, is here forced to its extreme
limits, and is so forced because a large part of the social capital
is employed by people who do not own it and who consequently
tackle things quite differently than the owner, who anxiously
weighs the limitations of his private capital in so far as he handles
it himself. This simply demonstrates the fact that the self-
expansion of capital based on the contradictory nature of capitalist
production permits an actual free development only up to a cer¬
tain point, so that in fact it constitutes an immanent fetter and
barrier to production, which are continually broken through by
the credit system.88 Hence, the credit system accelerates the
material development of the productive forces and the establish¬
ment of the world-market. It is the historical mission of the
capitalist system of production to raise these material foundations
of the new mode of production to a certain degree of perfection.
At the same time credit accelerates the violent eruptions of this
contradiction — crises — and thereby the elements of disintegra¬
tion of the old mode of production.

The two characteristics immanent in the credit system are, on
the one hand, to develop the incentive of capitalist production,
enrichment through exploitation of the labour of others, to the
purest and most colossal form of gambling and swindling, and
to reduce more and more the number of the few who exploit the
social wealth; on the other hand, to constitute the form of tran¬
sition to a new mode of production. It is this ambiguous nature,
which endows the principal spokesmen of credit from Law to
Isaac Pereire with the pleasant character mixture of swindler
and prophet.

88 Th. Chalmers [On Political Economy, etc., Glasgow, 1832. — Ed.].

CHAPTER XXVIII

MEDIUM OF CIRCULATION AND CAPITAL;

VIEWS OF TOOKE AND FULLARTON

The distinction between currency and capital, as Tooke,8® Wil¬
son, and others draw it, whereby the differences between medium
of circulation as money, as money-capital generally, and as inter-

" We here give the related passage from Tooke in the original, which was
cited in German on p. 390 [present edition: p. 404 ]: ‘The business off bankers,
setting aside the issue of promissory notes payable on demand, may be divid¬
ed into two branches, corresponding with the distinction pointed out by Dr.
(Adam) Smith of the transactions between dealers and dealers, and between
dealers and consumers. One branch of the bankers' business is to collect
capital from those who have not immediate employment for it, and to dis¬
tribute or transfer it to those who have. The other branch is to receive de¬
posits of the income* of their customers, and to pay ont the amount, as it is
wanted for expenditure by the latter in the objects of their consumption ...
the former being a circulation of capital, the latter of currency. ” (Tooke,
Inquiry into the Currency Principle, London, p. 36.) The first is ‘the concen¬
tration of capital on the one hand and the distribution of it on the other”;
the latter is ‘administering the circulation for local purposes of the district. ”
(Ibid., p. 37.) A far more correct conception is outlined in the following pasj
sage by Kinnear: ‘Money ... is employed to perform two operations essen¬
tially distinct.... As a medium of exchange between dealers and dealers, it
is the instrument by which transfers of capital are effected; that is, the
exchange of a certain amount of capital in money for an equal amount of
capital in commodities. But money employed in the payment of wages and
in purchase and sale between dealers and consumers is not capital, but
income; that portion of the incomes of the community, which is devoted
to daily expenditure. It circulates in constant daily use, and is that alone
which can, with strict propriety, be termed currency. Advances of capital
depend entirely on the will of the Bank and other possessors of capital, for
borrowers are always to be found; but the amount of the currency depends
on the wants of the community, among whom the money circulates, for the
purposes of daily expenditure.” (I. G. Kinnear, The Criii « and the Currency,
London, 1847 [pp. 3-4].)

MEDIUM OP CIRCULATION AND CAPITAL

443

est-bearing capital (moneyed capital in the English sense) are
thrown together pell-mell, comes down to two things.

Currency circulates on the one hand as coin (money), so far as it
promotes the expenditure of revenue, hence the traffic between the
individual consumers and the retail merchants, to which category
belong all merchants who sell to the consumers — to the individ¬
ual consumers as distinct from productive consumers or producers.
Here money circulates in the function of coin, although it contin¬
ually replaces capital. A certain portion of money in a particular
country is continually devoted to this function, although this por¬
tion consists of perpetually changing individual coins. In so far as
money promotes the transfer of capital, however, either as a means
of purchase (medium of circulation) or as a means of payment, it is
capital. It is, therefore, neither its function as a means of purchase,
nor that as a means of payment, which distinguishes it from
coin, for it may also act as a means of purchase between one dealer
and another so far as they buy from one another in hard cash,
and also as a means of payment between dealer and consumer
so far as credit is given and the revenue consumed before it is
paid. The difference is, therefore, that in the second case this
money not only replaces the capital for one side, the seller, but
is expended, advanced, by the other side, the buyer, as capital.
The difference, then, is in fact that between the money-form of
revenue and the money-form of capital, but not that between cur¬
rency and capital, for a certain quantity of money circulates
in the transactions between dealers as well as in the transactions
between consumers and dealers. It is, therefore, equally currency
in both functions. Tooke’s conception introduces confusion into
this question in various ways:

1) By confusing the functional distinctions;

2) By introducing the question of the quantity of money circu¬
lating together in both functions;

3) By introducing the question of the relative proportions of
the quantities of currency circulating in the two functions and
thus in the two spheres of the process of reproduction.

Ad 1) Confusing the functional distinctions that money in one
form is currency, and capital in the other. In so far as money serves
in one or another function, be it to realise revenue or transfer capi¬
tal, it functions in buying and selling, or in paying, as a means of
purchase or a means of payment, and, in the wider sense of the
word, as currency. The further purpose which it has in the calcu¬
lations of its spender or recipient, of being capital or revenue for
him, alters absolutely nothing, and this is doubly demonstrated.

444

DIVISION OF PROFIT

Although the kinds of money circulating in the two spheres are
different, the same piece of money, for instance a five-pound
note, passes from one sphere into the other and alternately per¬
forms both functions; which is inevitable, if only because the retail
merchant can give his capital the form of money only in the shape
of the coin which he receives from his customers. It may be as¬
sumed that the actual small change has its circulation centre of
gravity in the domain of retail trade; the retail dealer needs it
continually to make change and receives it back continually in
payment from his customers. But he also receives money, i.e.,
coin, in that metal which serves as a standard of value, hence
in England one-pound coins, or even bank-notes, particularly
notes of small denominations, such as five- and ten-pound notes.
These gold coins and notes, with whatever small change he has
to spare, are deposited by the retail dealer every day, or every
week, in his bank, and he pays for his purchases by drawing
cheques on his bank deposit. But the same gold coins and bank¬
notes are just as steadily withdrawn from the bank, directly or
indirectly (for instance, small change by manufacturers for the
payment of wages), as the money-form of its revenue by the entire
public in its capacity of consumer, and flow continually back to
the retail dealers, for whom they thus again realise a portion of
their capital, but at the same time also a portion of their revenue.
This last circumstance is important, and is wholly overlooked by
Tooke. Only where money is expended as money-capital, early in
the reproduction process (Book II, Part I*), does capital-value exist
purely as such. For the produced commodities contain not merely
capital, but also surplus-value; they are not only capital in them¬
selves, but already capital realised as capital, capital with the
source of revenue incorporated in it. What the retail dealer gives
away for the money returning to him, bis commodities, therefore,
is for him capital plus profit, capital plus revenue.

Furthermore, in returning to the retailer, circulating money
restores the money-form of his capital.

To reduce the difference between circulation as circulation of
revenue and circulation of capital into a difference between cur¬
rency and capital is, therefore, altogether wrong. This mode of
expression is in Tooke ’s case due to his simply assuming the stand¬
point of a banker issuing his own bank-notes. Those of his notes
which are continually in the public's hands (even if consisting of
ever different notes) and serving as currency cost him nothing, save

• English edition: Vol. II, pp. 24-32.— Ed.

MEDIUM OF CIRCULATION AND CAPITAL

445

the cost of the paper and the printing. They are circulating cer¬
tificates of indebtedness (bills of exchange) made out in his own
name, but they bring him money and thus serve as a means of
expanding his capital. They differ from his capital, however,
whether it be his own or borrowed. That is why there is a special
distinction for him between currency and capital, which, however,
has nothing to do with the definition of these terms as such,
least of all with that made by Tooke.

The distinct attribute— whether it serves as the money-form of
revenue or of capital— changes nothing in the character of money
as a medium of circulation; it retains this character no matter
which of the two functions it performs. True, money serves more
as an actual medium of circulation (coin, means of purchase) when
acting as the money-form of revenue, due to the dispersion of pur¬
chases and sales, and because the majority of dishursers of revenue,
the labourers, can buy relatively little on credit; whereas in the
traffic of the business world, where the medium of circulation is
the money-form of capital, money serves mainly as a means of pay¬
ment, partly on account of the concentration, and partly on ac¬
count of the prevailing credit system. But the distinction between
money as a means of payment and money as a means of purchase
(means of circulation) is a distinction that refers to the money
itself. It is not a distinction between money and capital. More
copper and silver circulate in the retail business, and more gold
in the wholesale business. Yet the distinction between silver
and copper on the one hand, and gold on the other, is not the
distinction between circulation and capital.

Ad 2) Introducing the question of the quantity of money circu¬
lating together in both functions: So far as money circulates, be
it as a means of purchase or as a means of payment — no matter
in which of the two spheres and independently of its function of
realising revenue or capital — the quantity of its circulating mass
comes under the laws developed previously in discussing the
simple circulation of commodities (Buch I, Kap. Ill, 2, b*). The
velocity of circulation, hence the number of repetitions of the
same function as means of purchase and means of payment by
the same pieces of money in a given term, the mass of simulta¬
neous purchases and sales, or payments, the sum of the prices
of the circulating commodities, and finally the balances of pay¬
ments to be settled in the same period, determine in either case
the mass of circulating money, of currency. Whether money so

* English edition: Ch. Ill, 2, b,— Ed.

446

DIVISION OF PROFIT

employed represents capital or revenue for the payer or receiver,
is immaterial, and in no way alters the matter. Its mass is simply
determined by its function as a medium of purchase and payment.

Ad 3) On the question of the relative proportions of the amounts
of currency circulating in both functions and thus in both spheres
of the reproduction process. Both spheres of circulation are con¬
nected internally, for, on the one hand, the mass of revenues to
be spent expresses the volume of consumption, and, on the other,
the magnitude of the masses of capital circulating in production
and commerce expresses the volume and velocity of the reproduc¬
tion process. Nevertheless, the same circumstances have a differ¬
ent effect, working even in opposite directions, upon the quan¬
tities of money circulating in both functions or spheres, or on
the amount of currency, as the English put it in banking par¬
lance. And this gives new cause for Tooke’s vulgar distinction
between capital and currency. The fact that the gentlemen of
the Currency Theory confuse two different things is no reason
to present them as two different concepts.

In times of prosperity, intense expansion, acceleration and
vigour of the reproduction prdcess, labourers are fully employed.
Generally, there is also a rise in wages which makes up in some
measure for their fall below average during other periods of the
business cycle. At the same time, the revenues of the capitalists
grow considerably. Consumption increases generally. Commodity-
prices also rise regularly, at least in the various vital branches
of business. Consequently, the quantity of circulating money
grows at least within definite limits, since the greater velocity
of circulation, in turn, sets up certain barriers to the growth
of the amount of currency. Since that portion of the social
revenue which consists of wages is originally advanced by the
industrial capitalist in the form of variable capital, and always
in money-form, it requires more money for its circulation in
times of prosperity. But we must not count this twice — first
as money required for the circulation of variable capital, and
then as money required for the circulation of the labourers’ rev¬
enue. The money paid to the labourers as wages is spent in retail
trade and returns about once a week to the banks as the retailers’
deposits, after negotiating miscellaneous intermediary trans¬
actions in smaller cycles. In times of prosperity the reflux of
money proceeds smoothly for the industrial capitalists, and thus
the need for money accommodation does not increase because
more wages have to be paid and more money is required for the
circulation of their variable capital.

MEDIUM OP CIRCULATION AND CAPITAL

447

The total result is that the mass of circulating media serving the
expenditure of revenue grows decidedly in periods of prosperity.

As concerns the circulation required for the transfer of capital,
hence required exclusively between capitalists, a period of brisk
business is simultaneously a period of the most elastic and easy
credit. The velocity of circulation between capitalist and capital¬
ist is regulated directly by credit, and the mass of circulating
medium required to settle payments, and even in cash purchases,
decreases accordingly. It may increase in absolute terms, but de¬
creases relatively under all circumstances compared to the expan¬
sion of the reproduction process. On the one hand, greater mass
payments are settled without the mediation of money; on the
other, owing to the vigour of the process, there is a quicker move¬
ment of the same amounts of money, both as means of purchase
and of payment. The same quantity of money promotes the reflux
of a greater number of individual capitals.

On the whole, the currency of money in such periods appears
full, although its Department II (transfer of capital) is, at least
relatively, contracted, while its Department I (expenditure of rev¬
enue) expands in absolute terms.

The refluxes express the reconversion of commodity-capital into
money, M— G— M', as we have seen in the discussion of the repro¬
duction process, Book II, Part I. Credit renders the reflux in
money-form independent of the time of actual reflux both for
the industrial capitalist and the merchant. Both of them sell
on credit; their commodities are thus alienated before they are
reconverted into money for them, hence before they flow back
to them in money-form. On the other hand, they buy on credit,
and in this way the value of their commodities is reconverted,
be it into productive capital or commodity-capital, even before
this value has really been transformed into money, i.e., before
the commodity-price is due and paid for. In such times of pros¬
perity the reflux passes off smoothly and easily. The retailer se¬
curely pays the wholesaler, the wholesaler pays the manufacturer,
the manufacturer pays the importer of raw materials, etc. The
appearance of rapid and reliable refluxes always keeps up for
a longer period after they are over in reality by virtue of the
credit that is under way, since credit refluxes take the place of
the real ones. The banks scent danger as soon as their clients
deposit more bills of exchange than money. See the testimony
of the Liverpool bank director, p. 398.*

* Present edition: pp. 411-13.— Ed.

44%

DIVISION OF PROFIT

To insert what I have noted earlier: “In periods of predominant
credit, the velocity of the circulation of money increases faster
than commodity-prices, whereas in times of declining credit
commodity-prices drop slower than the velocity of circulation.”
(Zur Kritik der politischen Oekonomie, 1859, S. 83, 84.)

The reverse is true in a period of crisis. Circulation No. I
contracts, prices fall, similarly wages; the number of employed
labourers is reduced, the mass of transactions decreases. On the
contrary, the need for money accommodation increases in cir¬
culation No. II with the contraction of credit. We shall examine
this point in greater detail immediately.

There is no doubt that with the decrease of credit which goes
hand in hand with stagnation in the reproduction process, the
circulation mass required for No. I, the expenditure of revenue,
contracts, while that required for No. II, the transfer of capital,
expands. But to what extent this statement coincides with what
is maintained by Fullarton and others still remains to be ana¬
lysed: “A demand for capital on loan and a demand for additional
circulation are quite distinct things, and not often found
associated.” (Fullarton, 1. c., p. 82, title of Chapter 5.)90

,0 “It is a great error, indeed, to imagine that the demand for pecuniary
accommodation” (that is, for the loan of capital) “is identical with a demand
for additional means of circulation, or even that the two are frequently
associated. Each demand originates in circumstances peculiarly affecting
itself, and very distinct from each other. It is when everything looks pros¬
perous, when wages are high, prices on the rise, and factories busy, that an
additional supply of currency is usually required to perform the additional
functions inseparable from the necessity of making larger and more numer¬
ous payments; whereas it is chiefly in a more advanced stage of the com¬
mercial cycle, when difficulties begin to present themselves, when markets
are overstocked, and returns delayed, that interest rises, and a pressure
comes upon the Bank for advances of capital. It is true that there is no me¬
dium through which the Bank is accustomed to advance capital except that
of its promissory notes; and that to refuse the notes, therefore, is to refuse
the accommodation. But the accommodation once granted, everything
adjusts itself in conformity with the necessities of the market; the loan
remains, and the currency, if not wanted, finds its way back to the issuer.
Accordingly, a very slight examination of the Parliamentary Returns may
convince any one, that the securities in the hands of the Bank of England
fluctuate more frequently in an opposite direction to its circulation than in
concert with it, and that the example, therefore, of that great establishment
furnishes no exception to the doctrine so strongly pressed by the country
bankers, to the effect that no bank can enlarge its circulation, if that circu¬
lation be already adequate to the purposes to which a bank-note currency
is commonly applied; but that every addition to its advances, after that
limit is passed, must be made from its capital, and supplied by the sale of
some of its securities in reserve, or by abstinence from further investment

MEDIUM OF CIRCULATION AND CAPITAL

449

In the first place it is evident that in the first of the two cases
mentioned above, during times of prosperity, when the mass of the
circulating medium must increase, the demand for it increases.
But it is likewise evident that, when a manufacturer draws more
or less of his deposit out of a bank in gold or bank-notes because
he has to expend more capital in the form of money, his demand
for capital does not thereby increase. What increases is merely
his demand for this particular form in which he expends his
capital. The demand refers only to the technical form, in which
he throws his capital into circulation. Just as in the case of a
different development of the credit system, the same variable
capital, for example, or the same quantity of wages, requires a
greater mass of means of circulation in one country than in another;
in England more than in Scotland, for instance, and in Germany
more than in England. Likewise in agriculture, the same capital
active in the reproduction process requires different quantities of
money in different seasons for the performance of its function.

in such securities. The table compiled from the Parliamentary Returns for
the interval between 1833 and 1840, to which I have referred in a preceding
page, furnishes continued examples of this truth; but two of these are so re¬
markable that it will be quite unnecessary for me to go beyond them. On
the 3rd of January, 1837, when the resources of the Bank were strained to
the uttermost to sustain credit and meet the difficulties of the money-market,
we find its advances on loan and discount carried to the enormous sum of
817,022,000, an amount scarcely known since the war, and almost equal
to the entire aggregate issues which, in the meanwhile, remain unmoved at
so low a point as £17,076,0001 On the other hand, we have on the 4th of June,
1833, a circulation of £18,892,000, with a return of private securities in hand,
nearly, if not the very lowest on record for the last half-century, amounting
to no more than 8972,000!” (Fullarton, 1. c., pp. 97, 98.) That a demand
for pecuniary accommodation need not be identical by any means with a
demand for gold (what Wilson, Tooke and others call capital) is seen from
the following testimony of Mr. Weguelin, Gbvernor of the Bank of England:
“The discounting of bills to that extent” (one million daily for three succes¬
sive days) “would not reduce the reserve” (of bank-notes), “unless the public
demanded a greater amount of active circulation. The notes issued on the
discount of bills would be returned through the medium of the bankers and
through deposits. Unless these transactions were for the purpose of export¬
ing bullion, and unless there were an amount of internal panic which induced
people to lock up their notes, and not to pay them into the hands of the bank¬
ers ... the reserve would not be affected by the magnitude of the transac¬
tions."— “The Bank may discount a million and a hall a day, and that is done
constantly, without its reserve being in the slightest degree affected, the notes
coming back again as deposits, and no other alteration taking place than
the mere transfer from one account to another.” (Report on Bank Acts, 1857,
Evidence Nos. 241, 500.) The notes therefore serve here merely as means of
transferring credits.

450

DIVISION OF PROFIT

But the contrast drawn by Fullarton is not correct. It is by no
means the strong demand for loans as he says, which distinguishes
the period of depression from that of prosperity, but the ease with
which this demand is satisfied in periods of prosperity, and the
difficulties which it meets in periods of depression. It is precisely
the enormous development of the credit system during a prosperity
period, hence also the enormous increase in the demand for loan
capital and the readiness with which the supply meets it in such
periods, which brings about a shortage of credit during a period of
depression. It is not, therefore, the difference in volume of demand
for loans which characterises both periods.

As we have previously remarked, both periods are primarily
distinguished by the fact that the demand for currency between
consumers and dealers predominates in periods of prosperity, and
the demand for currency between capitalists predominates in pe¬
riods of depression. During a depression the former decreases, and
the latter increases.

What strikes Fullarton and others as decisively important is
the phenomenon that in such periods when securities in possession
of the Bank of England are on the increase, its circulation of notes
decreases, and vice versa. The level of the securities, however, ex¬
presses the volume of the pecuniary accommodation, the volume
of discounted bills of exchange and of advances made against
marketable collateral. Thus Fullarton says in the above passage
(Footnote 90, p. 435*) that the securities in the hands of the
Bank of England fluctuate mostly in an opposite direction to its
circulation, and this corroborates the view long held by private
banks that no bank can increase its ussue of bank-notes beyond
a certain point determined by the needs of its public; but if a
bank wants to make advances beyond this limit, it must make
them out of its capital, hence it must either realise on securities
or utilise deposits which it would otherwise have invested in
secunities.

This, however, reveals also what Fullarton means by capital.
What does capital signify here? That the Bank can no longer make
advances with its own bank-notes, or promissory notes, which, of
course, cost it nothing. But what does it make advances with in
that case? With the sums realised from the sale of securities held
in reserve, i.e., government bonds, stocks, and other interest-
bearing paper. And what does it get in payment for the sale of
such paper? Money— gold or bank-notes, so far as the latter are

* Present edition: pp. 448-49.— Ed.

MEDIUM OF CIRCULATION AND CAPITAL

451

legal tender, such as those of the Bank of England. What the
bank advances, therefore, is under all circumstances money. This
money, however, now constitutes a part of its capital. If it ad¬
vances gold, this is understandable. If it advances notes, then
these notes represent capital, because it has given up some actual
value for them, such as interest-bearing paper. In the case of
private banks the notes secured by them through the sale of
securities cannot be anything else, in the main, but Bank of
England notes or their own notes, since others would hardly be
taken in payment for securities. If it is the Bank of England
itself, then its own notes, which it receives in return, cost it cap¬
ital, that is, interest-bearing paper. Besides, it thereby with¬
draws its own notes from circulation. Should it reissue these
notes, or issue new notes in their stead to the same amount, they
now represent capital. And they do so equally well, when used
for advances to capitalists, or when used later, when the demand
for such pecuniary accommodation decreases, for reinvestment
in securities. In all these cases the term capital is employed
only from the banker’s point of view, and means that the banker
is compelled to loan more than his mere credit.

As is known, the Bank of England makes all its advances in
its own notes. Now, if despite this, as a rule, the bank-note circu¬
lation of the Bank decreases in proportion as the discounted bills
of exchange and collateral in its hands, and thus its advances in¬
crease— what becomes of the notes thrown into circulation? How
do they return to the Bank?

To begin with, if the demand for money accommodation arises
from an unfavourable national balance of payments and thereby
implies a drain of gold, the matter is very simple. The bills of ex¬
change are discounted in bank-notes. The bank-notes are exchanged
for gold by the Bank itself, in its issue department, and this
gold is exported. It is as though the Bank paid out gold directly,
without the mediation of notes, on discounting bills. Such an in¬
creased demand, which may in certain cases be £7 to £10 million,
naturally does not add a single five-pound note to the country’s
domestic circulation. If it is now said that the Bank advances cap¬
ital, and not currency, this means two things. First, that it does
not advance credit, but actual values, a part of its own capital or
of capital deposited with it. Secondly, that it does not advance
money for inland, but for international circulation, that it
advances world-money; and for this purpose money must always
exist in its form of a hoard, in its metallic state; in the form in
which it is not merely a form of value, but value itself, whose

452

DIVISION OF PROFIT

money-form it is. Although this gold now represents capital, both
for the Bank and the exporting gold-dealer, i.e., banking or
commercial capital, the demand for it is not for capital, but for
the absolute form of money-capital. This demand arises precisely
at the moment when foreign markets are overcrowded with un¬
saleable English commodity-capital. What is wanted, therefore,
is capital, not as capital, but capital as money, in the form in
which money serves as a universal world-market commodity;
and this is its original form of precious metal. The drain of gold
is not, therefore, as Fullarton, Tooke, etc., claim, “a mere ques¬
tion of capital.” Rather, it is a “question of money,” even if
in a specific function. The fact that it is not a question of inland
circulation as the advocates of the Currency Theory maintain,
does not prove at all, as Fullarton and others think, that it is
meroly a question of capital. It is a question of raouey in the
form in which money is an international means of payment.
“Whether that capital” (the purchase price for the million of
quarters of foreign wheat after a crop failure in the homo country)
“is transmitted in merchandise or in specie, is a point which
in no way affects the nature of the transaction.” (Fullarton, 1. c.,
p. 131.) But it significantly affects the question, whether there is
a drain of gold, or not. Capital is transferred in the form of
precious metal, because it either cannot be transferred at all, or
only at a great loss in the shape of commodities. The fear which
the modern banking system has of gold drain exceeds anything
ever imagined by the monetary system, which considered pre¬
cious metals as the only true wealth. Take, for instanco, the fol¬
lowing evidence of the Governor of the Bank of England, Morris,
before the Parliamentary Committee on the crisis of 1847-48:
(3846. Question:) “When I spoke of the depreciation of stocks
and fixed capital, are you not aware that all property invested
in stocks and produce of every description was depreciated in
the same way; that raw cotton, raw silk, and unmanufactured
wool were sent to the continent at the same depreciated price,
and that sugar, coffee and tea were sacrificed as at forced sales? —
It was inevitable that the country should make a considerable
sacrifice for the purpose of meeting the efflux of bullion which
had taken place in consequence of the large importation of
food.” — “3848. Do not you think it would have been better to
trench upon the f 8 million lying in the coffers of the Bank, than
to have endeavoured to get the gold back again at such a sacri¬
fice? — No, I do not." — It is gold which here stands for the only
true wealth.

MEDIUM OF CIRCULATION AND CAPITAL

453

Fullarton quotes the discovery by Tooke that “with only one or
two exceptions, and those admitting of satisfactory explanation,
every remarkable fall of exchange, followed by a drain of gold,
that has occurred during the last half-century, has been coincident
throughout with a comparatively low state of the circulating me¬
dium, and vice versa.” (Fullarton, p. 121.) This discovery proves
that such drains of gold occur generally after a period of animation
and speculation, as “the signal of a collapse already commenced ...
an indication of overstocked markets, of a cessation of the for¬
eign demand for our productions, of delayed returns, and, as the
necessary sequel of all these, of commercial discredit, manufac¬
tories shut up, artisans starving, and a general stagnation of
industry and enterprise” (p. 129). This, naturally, is at once
the best refutation of the claim of the advocates of the Currency
Theory, that “a full circulation drives out bullion and a low
circulation attracts it. ” On the contrary, while the Bank of
England generally carries a strong gold reserve during a period of
prosperity, this hoard is generally formed during the slack period,
which follows after a storm.

All this sagacity concerning the drain of gold, then, amounts
to saying that the demand for international media of circulation
and payment differs from the demand for internal media of cir¬
culation and payment (and it goes without saying, therefore,
that “the existence of a drain does not necessarily imply any
diminution of the internal demand for circulation,” as Fullarton
has it on page 112 of his work) and that the export of precious
metal and its being thrown into international circulation is not
the same as throwing notes or specie into internal circulation.
As for the rest, I have shown on a previous occasion* that the
movements of a hoard concentrated as a reserve fund for inter¬
national payments have as such nothing to do with the move¬
ments of money as a medium of circulation. At any rate, the
question is complicated by the fact that the different functions of
a hoard, which I have developed from the nature of money — such
as its function as a reserve fund of means of payment to cover
due bills in domestic business; the function of a reserve fund
of currency; and finally, the function of a reserve fund of world-
money — are here attributed to one sole reserve fund. It also
follows from this that under certain circumstances a drain of
gold from the Bank to the home market may combine with a drain

* English edition: Vol. 1, pp. 144-45. — Ed.

454

DIVISION OF PROFIT

abroad. The question is further complicated however by the fact
that this hoard is arbitrarily burdened with the additional func¬
tion of serving as a fund guaranteeing the convertibility of bank¬
notes in countries, in which the credit system and credit-money
are developed. And in addition to all this comes 1) the concentra¬
tion of the national reserve fund in one single central bank,
and 2) its reduction to the smallest possible minimum. Hence,
also, Fullarton’s complaint (p. 143): “One cannot contemplate
the perfect silence and facility with which variations of the
exchange usually pass off in continental countries, compared
with the state of feverish disquiet and alarm always produced
in England whenever the treasure at the Bank seems to be at
all approaching to exhaustion, without heing struck with the
great advantage in this respect which a metallic currency
possesses. ”

However, if we now leave aside the drain of gold, how can a
bank that issues notes, like the Bank of England, increase the
amount of money accommodation granted by it without increas¬
ing its issue of bank-notes?

So far as the bank itself is concerned, all the notes outside its
walls, whether circulating or in private hoards, are in circulation,
i.e., are out of its hands. Hence, if the bank extends its discount¬
ing and money-lending business, its advances on securities, all
the bank-notes issued by it for that purpose must return, for other¬
wise they would increase the volume of circulation, something
which is not supposed to happen. This return may take place
in two ways.

First: The bank pays A notes against securities; A uses them to
pay for hills of exchange due to B, and B deposits notes once more
in the bank. This brings to a close the circulation of these notes,
but the loan remains. (“The loan remains, and the currency, if not
wanted, finds its way back to the issuer.” Fullarton, p. 97.) The
notes, which the bank advanced to A, have now returned to it;
but it is the creditor of A, or whoever may have been the drawer
of the bill discounted by A, and the debtor of B for the amount
of value expressed in these notes, and B thus disposes of a corre¬
sponding portion of the capital of the bank.

Secondly : A pays to B, and B himself, or C, to whom he pays the
notes, uses these notes to pay bills due to the bank, directly or
indirectly. In that case the bank is paid in its own notes. This
concludes the transaction (pending A’s return payment to the
bank).

To what extent, now, shall the bank’s advance to A be regarded

MEDIUM OF CIRCULATION AND CAPITAL

455

as an advance of capital, or as a mere advance of means of
payment?91

[This depends on the nature of the loan itself. Three cases must
be distinguished.

First case. — A receives from the bank amounts loaned on his
own personal credit, without giving any security for them. In this
case he does not merely receive means of payment, but also
unquestionably a new capital, which he may employ in his business
and realise as an additional capital until the maturity date.

Second case. — A has given to the bank securities, national bonds,
or stocks as collateral, and received for them, say, up to two-thirds
of their momentary value as a cash loan. In this case he has re¬
ceived the means of payment he needed, but no additional capital,
for he entrusted to the bank a larger capital-value than he
received from it. But this larger capital-value was, on the one
hand, unavailable for his momentary needs (means of payment), be¬
cause invested in a particular interest-bearing form; on the other
hand, A had his own reasons for not wanting to convert this
capital-value directly into means of payment by selling it. His
securities served, among other things, as a reserve capital, and
he set them in motion as such. The transaction between A and
the bank, therefore, consists in a temporary mutual transfer of
capital, so that A does not receive any additional capital (quite
the contrary!) although he receives the desired means of payment.
For the bank, on the other hand, this transaction constitutes
a temporary lodgement of money-capital in the form of a loan,
a conversion of money-capital from one form into another, and
this conversion is precisely the essential function of the banking
business.

Third case. — A had the bank discount a bill of exchange and
received its value in cash after the deduction of discount. In this
case he sold a non-convertible money-capital to the bank for the
amount of value in convertible form. He sold his still running
bill for cash money. The bill is now the property of the bank.
It does not alter the matter that A as last endorser of the bill is
responsible for it to the bank in default of payment. He shares
this responsibility with the other endorsers and with the drawer
of the bill, all of whom are duly responsible to him. In this case.

11 The passage that follows in the original is unintelligible in this
context and has been rewritten by the editor to the end of the brackets. In
another context this point has already been touched upon in Chapter XXVI.
[Present edition: pp. 427-29. — Ed.]— F. E.

456

DIVISION OF PROFIT

therefore, we do not have a loan, but only an ordinary purchase
and sale. For this reason, A has nothing to pay back to the bank.
It reimburses itself by cashing the bill when it becomes due.
Here, too, a transfer of capital has taken place between A and
the bank, and in exactly the same manner as in the sale and pur¬
chase of any other commodity, and for this very reason A did not
receive any additional capital. What he needed and received
were means of payment, and he received them by having the
bank convert one form of his money-capital — his bill — into
another — money.

It is therefore only in the first case that there is any question of
a real advance of capital; in the second and third cases, the matter
can be so regarded only in the sense that every investment of
capital implies an “advance of capital. ” In this sense the bank
advances money-capital to A; but for A it is money-capital at
best in the sense that it is a portion of his capital in general.
And he requires it and uses it not specifically as capital, but
rather as specifically a means of payment. Otherwise, every
ordinary sale of commodities by which means of payment
are secured might be considered as receiving an advance of
capital.— F. E. ]

In the case of private banks which issue their own notes we have
this difference, that if their notes remain neither in local circula¬
tion, nor return to them in the form of deposits, or in payment
for due bills of exchange, they fall into the hands of persons who
compel the private bank to cash these notes in gold or in notes
of the Bank of England. In this event, therefore, its loan in fact
represents an advance of notes of the Bank of England, or, what
amounts to the same thing for the private bank, of gold, hence
a portion of its bank capital. The same holds good in case the
Bank of England itself, or some other bank, which has a fixed
legal maximum for its issue of notes, must sell securities to with¬
draw its own notes from circulation and then issue them once
more in the shape of advances; in that case, the bank’s own notes
represent a portion of its mobilised bank capital.

Even if the circulation were purely metallic, it would be possi¬
ble 1) for a drain of gold [Marx evidently refers here to a drain of
gold that would, at least partially, go abroad — F. E. 1 to empty
the treasury, and 2) since gold would be chiefly wanted by the
bank to make payments (in settlement of erstwhile transactions),
the advance against collateral could grow considerably, but would
flow back to it in the form of deposits or in payment of due bills
of exchange; so that, on one side, the total treasure of the bank

MEDIUM OF CIRCULATION AND CAPITAL

457

would decrease with an increase of the securities in its hands,
while on the other, it would now be holding the same amount,
which it possessed formerly as owner, as debtor of its depositors,
and finally the total quantity of currency would decrease.

Our assumption so far has been that the loans are made in notes,
so that they carry with them at least a fleeting, even if instantly
disappearing, increase in the issue of notes. But this is not neces¬
sary. Instead of a paper note, the bank may open a credit account
for A, in which case this A, the bank’s debtor, becomes its imag¬
inary depositor. He pays his creditors with cheques on the bank,
and the recipient of these cheques passes them on to his own
banker, who exchanges them for the cheques outstanding against
him in the clearing house. In this case no mediation of notes takes
place at all, and the entire transaction is confined to the fact
that the bank settles its own debt with a cheque drawn on itself,
and its actual recompense consists in its claim on A. In this
case the bank has loaned a portion of its own bank capital,
because its own debt claim, to A.

In so far as this demand for pecuniary accommodation is a de¬
mand for capital, it is so only for money-capital. It is capital only
from the standpoint of the banker, namely gold (in the case of
gold exports abroad) or notes of the National Bank, which a
private bank can obtain only by purchase against an equivalent,
and which, therefore, represent capital for it. Or, again, it is
a case of interest-bearing papers, government bonds, stocks,
etc., which must be sold in order to obtain gold or bank-notes.
Such papers, however, if in government bonds, are capital only
for the buyer, for whom they represent the purchase price, the
capital he invested in them. In themselves they are not capital,
but merely debt claims. If mortgages, they are mere titles on
future ground-rent. And if they are shares of stock, they are
mere titles of ownership, which entitle the holder to a share in
future surplus-value. All of these are not real capital. They do
not form constituent parts of capital, nor are they values in them¬
selves. By way of similar transactions money belonging to the
bank may be transformed into deposits, so that the bank becomes
the debtor instead of owner of this money, and holds it under
a different title of ownership. However important this may be
to the bank, it alters nothing in the mass of reserve capital, or
even of money-capital available in a particular country. Capital,
therefore, represents here only money-capital, and, if not avail¬
able in the actual form of money, it represents a mere title on
capital. This is very important, since a scarcity of, and pressing

458

DIVISION OF PROFIT

demand for, banking capital is confounded with a decrease of
actual capital, which conversely is in such cases rather abundant
in the form of means of production and products, and swamps
the markets.

It is, therefore, easy to explain how the mass of securities held
by a bank as collateral increases, hence how the growing demand
for pecuniary accommodation can be satisfied by the bank, while
the total mass of currency remains the same or decreases. This
total mass is held in check during such periods of money strin¬
gency in two ways: 1) by a drain of gold; 2) by a demand for money
in its capacity as a mere means of payment, when the issued
bank-notes return immediately; or when the transactions take
place without the mediation of notes by means of book credit;
when, therefore, payments are made simply through a credit
transaction, the settlement of these payments being the sole
purpose of the operation. It is a peculiarity of money, when it
serves merely to settle accounts (and in times of crises loans are
taken up to pay, rather than to buy; to wind up previous trans¬
actions, not to initiate new ones), that its circulation is no
more than fleeting, even where balances are not settled by mere
credit operations, without the mediation of money, so that,
when there is a strong demand for pecuniary accommodation,
an enormous quantity of such transactions can take place with¬
out expanding the circulation. But the mere fact that the
circulation of the Bank of England remains stable or even
decreases simultaneously with an extensive accommodation of
money on its part, does not prima facie prove, as Fullarton, Tooke
and others assume (owing to their erroneous notion that pecu¬
niary accommodation is identical with receiving capital on loan
as additional capital), that the circulation of money (of bank¬
notes) in its function as a means of payment is not increased
and extended. Since the circulation of notes as means of purchase
decreases during a business depression, when such extensive ac¬
commodation is necessary, their circulation as means of payment
may increase, and the aggregate amount of the circulation, the
sum of notes functioning as means of purchase and payment,
may remain stable or may even decrease. The circulation as a
means of payment of bank-notes immediately returning to the
bank that issues them is simply not circulation in the eyes of
those economists.

Should circulation as a means of payment increase at a higher
rate than it decreases as a means of purchase, the aggregate circu¬
lation would increase, although the money serving as a means of

MEDIUM OP CIRCULATION AND CAPITAL

459

purchase would decrease considerably in quantity. And this
actually occurs in certain periods of crisis, namely, when credit
Collapses completely and when not only commodities and securi¬
ties are unsaleable but bills of exchange are undiscountable and
nothing counts any more but money payment, or, as the mer¬
chant puts it, cash. Since Fullarton et al. do not understand that
the circulation of notes as means of payment is the character¬
istic feature of such periods of money shortage, they treat this
phenomenon as accidental. “With respect again to those exam¬
ples of eager competition for the possession of bank-notes, which
characterise seasons of panic and which may sometimes, as at
the close of 1825, lead to a sudden, though only temporary, enlarge¬
ment of the issues, even while the efflux of bullion is still going
on, these, I apprehend, are not to be regarded as among the natu¬
ral or necessary concomitants of a low exchange; the demand in
such cases is not for circulation” (read circulation as a means
of purchase), “but for hoarding, a demand on the part of alarmed
bankers and capitalists which arises generally in the last act of
the crisis” (hence, for a reserve of means of payment), “after a
long continuation of the drain, and is the precursor of its ter¬
mination.” (Fullarton, p. 130.)

In the discussion of money as a means of payment (Buch I, Kap.
Ill, 3, b*) we have already explained, in what manner, when the
chain of payments is suddenly interrupted, money turns from its
ideal form into a material and, at the same time, absolute form of
value vis-a-vis the commodities. This was illustrated by some
examples (footnotes 100 and 101**). This interruption itself is
partly an effect, partly a cause of the instability of credit and of
the circumstances accompanying it, such as overstocking of
markets, depreciation of commodities, interruption of produc¬
tion, etc.

It is evident, however, that Fullarton transforms the distinc¬
tion between money as a means of purchase and money as a means
of payment into a false distinction between currency and capital.
This is again due to the narrow-minded banker’s conception of
circulation.

It might yet be asked: which is it, capital or money in its
specific function as a means of payment that is in short supply
in such periods of stringency? And this is a well-known
controversy.

* English edition: Ch. Ill, 3, b.— Ed.

** English edition: Book I, pp. 138-39, notes 2 and 3. — Ed.

460

DIVISION OF PROFIT

In the first place, so far as the stringency is marked by a drain
of gold, it is evidently international means of payment that are
demanded. But money in its specific capacity of international
means of payment is gold in its metallic actuality, as a valuable
substance in itself, as a quantity of value. It is at the same time
capital, not capital as commodity-capital, but as money-capital,
capital not in the form of commodities but in the form of money
(and, at that, of money in the eminent sense of the word, in which
it exists as universal world-market commodity). It is not a
contradiction here between a demand for money as a means of
payment and a demand for capital. The contradiction is rather
between capital in its money-form and capital in its commodity-
form; and the form which is here demanded and in which alone
it can function, is its money-form.

Aside from this demand for gold (or silver) it cannot be said that
there is any dearth whatever of capital in such periods of crisis.
Under extraordinary circumstances, such as rise in the price of
com, or a cotton famine, etc., this may be the case; but these
phenomena are not necessary or regular accompaniments of such
periods; and the existence of such a lack of capital cannot be
assumed beforehand without further ado from the mere fact that
there is a heavy demand for pecuniary accommodation. On the
contrary. The markets are overstocked, swamped with commodity-
capital. Hence, it is not, in any case, a lack of commodity-capital
which causes the stringency. We shall return to this question
later.

Book III

THE PROCESS

OF CAPITALIST PRODUCTION
AS A WHOLE

PART V

DIVISION OF PROFIT INTO INTEREST
AND PROFIT OF ENTERPRISE.
INTEREST-REARING CAPITAL

(CONTINUED)

CHAPTER XXIX

COMPONENT PARTS OF BANK CAPITAL

It is now necessary to examine the component parts of bank
capital in greater detail.

We have just seen that Fullarton and others transform the
distinction between money as a medium of circulation and money
as a means of payment — also universal money in so far as it con¬
cerns a drain of gold — into a distinction between currency and
capital.

The peculiar role played by capital in this instance is the
reason why bankers’ economics teaches that money is indeed capital
par excellence as insistently as enlightened economics taught that
money is not capital.

In subsequent analyses, we shall demonstrate that money-
capital is being confused here with moneyed capital in the sense of
interest-bearing capital, while in the former sense, money-capital
is always merely a transient form of capital — in contradistinction
to the other forms of capital, namely, commodity-capital and
productive capital.

Bank capital consists of 1) cash money, gold or notes; 2) securi¬
ties. The iatter can be subdivided into two parts: commercial
paper or bills of exchange, which run for a period, become due
from time to time, and whose discounting constitutes the es¬
sential business of the banker; and public securities, such as
government bonds, treasury notes, stocks of all kinds, in short,
interest-bearing paper which is however significantly different
from bills of exchange. Mortgages may also be included here.
The capital composed of these tangible component parts can
again be divided into the banker’s invested capital and into
deposits, which constitute his banking capital, or borrowed
capital. In the case of banks which issue notes; these must

464

DIVISION OF PROFIT

also be included. We shall leave the deposits and notes out of
consideration for the present. It is evident at any rate that the
actual component parts of the banker’s capital (money, bills of
exchange, deposit currency) remain unaffected whether the vari¬
ous elements represent the banker’s own capital or deposits, i.e.,
the capital of other people. The same division would remain,
whether he were to carry on his business with only his own capi¬
tal or only with deposited capital.

The form of interest-bearing capital is responsible for the fact
that every definite and regular money revenue appears as interest
on some capital, whether it arises from some capital or not. The
money income is first converted into interest, and from the inter¬
est one can determine the capital from which it arises. In like
manner, in the case of interest-bearing capital, every sum of value
appears as capital as long as it is not expended as revenue; that
is, it appears as principal in contrast to possible or actual inter¬
est which it may yield.

The matter is simple. Let the average rate of interest be 5%
annually. A sum of £500 would then yield £25 annually if converted
into interest-hearing capital. Every fixed annual income of £25
may then be considered as interest on a capital of £500. This,
however, is and remains a purely illusory conception, except
in the case where the source of the £25, whether it be a mere title
of ownership or claim, or an actual element of production such
as real estate, is directly transferable or assumes a form in which
it becomes transferable. Let us take the national debt and wages as
illustrations.

The state has to annually pay its creditors a certain amount of
interest for the capital borrowed from them. In this case, the cred¬
itor cannot recall his investment from his debtor, but can only sell
his claim, or his title of ownership. The capital itself has been con¬
sumed, i.e., expended by the state. It no longer exists. What the
creditor of the state possesses is 1) the state’s promissory note,
amounting to, say, £100; 2) this promissory note gives the credi¬
tor a claim upon the annual revenue of the state, that is, the an¬
nual tax proceeds, for a certain amount, e.g., £5 or 5%; 3) the
creditor can sell this promissory note of £100 at his discretion to
some other person. If the rate of interest is 5%, and the security
given by the state is good, the owner A can sell this promissory
note, as a rule, to B for £100; for it is the same to B whether he
lends £100 at 5% annually, or whether he secures for himself
by the payment of £100 an annual tribute from the state amount¬
ing to £5. But in all these cases, the capital, as whose offshoot

COMPONENT PARTS OP BANK CAPITAL

465

(interest) state payments are considered, is illusory, fictitious
capital. Not only that the amount loaned to the state no longer
exists, but it was never intended that it be expended as capital,
and only by investment as capital could it have been trans¬
formed into a self-preserving value. To the original creditor A, the
share of annual taxes accruing to him represents interest on his
capital, just as the share of the spendthrift’s fortune accruing
to the usurer, appears to the latter, although in both cases the
loaned amount was not invested as capital. The possibility of
selling the state’s promissory note represents for A the potential
means of regaining his principal. As for B, his capital is invested,
from his individual point of view, as interest-bearing capital.
So far as the transaction is concerned, B has simply taken the
place of A by buying the latter's claim on the state’s revenue. No
matter how often this transaction is repeated, the capital of the
state debt remains purely fictitious, and, as soon as the prom¬
issory notes become unsaleable, the illusion of this capital disap¬
pears. Nevertheless, this fictitious capital has its own laws of
motion, as we shall presently see.

We shall now consider labour-power in contrast to the capital
of the national debt, where a negative quantity appears as capi¬
tal — just as interest-bearing capital, in general, is the fountain¬
head of all manner of insane forms, so that debts, for instance,
can appear to the banker as commodities. Wages are conceived
here as interest, and therefore labour-power as the capital yielding
this interest. For example, if the wage for one year amounts to
£50 and the rate of interest is 5%, the annual labour-power is
equal to a capital of £1,000. The insanity of the capitalist mode
of conception reaches its climax here, for instead of explaining
the expansion of capital on the basis of the exploitation of labour-
power, the matter is reversed and the productivity of labour-
power is explained by attributing this mystical quality of interest-
bearing capital to labour-power itself. In the second half of
the 17th century, this used to be a favourite conception (for exam¬
ple, of Petty), but it i? used even nowadays in all seriousness by
some vulgar economists and more particularly by some German
statisticians.1 Unfortunately two disagreeably frustrating facts

1 “The labourer possesses capital-value, which is arrived at by consider¬
ing the money-value of his annual wage as income from interest.... Capi¬
talising the average daily wage at 4%, we obtain the average value of a
male agricultural labourer to be: German Austria, 1,500 taler; Prussia,
1,500; England, 3,750; France, 2,000; inner Russia, 750 taler.” (Von Reden,
t cTgleichende Kullurstatistik, Berlin, 1848, p. 434.)

466

DIVISION OF PROFIT

mar this thoughtless conception. In the first place, the labourer
must work in order to obtain this interest. In the second place,
he cannot transform the capital-value of his labour-power into
cash by transferring it. Rather, the annual value of his labour-
power is equal to his average annual wage, and what he has to
give the buyer in return through his labour is this same value
plus a surplus-value, i.e., the increment added by his labour.
In a slave society, the labourer has a capital-value, namely, his
purchase price. And when he is hired out, the hirer must pay, in
the first place, the interest on this purchase price, and, in addi¬
tion, replace the annual wear and tear on the capital.

The formation of a fictitious capital is called capitalisation.
Every periodic income is capitalised by calculating it on the basis
of the average rate of interest, as an income which would be real¬
ised by a capital loaned at this rate of interest. For example, if
the annual income is £100 and the rate of interest 5%, then the
£100 would represent the annual interest on £2,000, and the
£2,000 is regarded as the capital-value of the legal title of owner¬
ship on the £100 annually. For the person who buys this title
of ownership, the annual income of £100 represents indeed the
interest on his capital invested at 5%. All connection with the
actual expansion process of capital is thus completely lost, and
the conception of capital as something with automatic self¬
expansion properties is thereby strengthened.

Even when the promissory note — the security — does not rep¬
resent a purely fictitious capital, as it does in the case of state
debts, the capital-value of such paper is nevertheless wholly
illusory. Wehave previously seen in what manner the credit system
creates associated capital. The paper serves as title of ownership
which represents this capital. The stocks of railways, mines, navi¬
gation companies, and the like, represent actual capital, namely,
the capital invested and functioning in such enterprises, or the
amount of money advanced by the stockholders for the purpose
of being used as capital in such enterprises. This does not preclude
the possibility that these may represent pure swindle. But this
capital does not exist twice, once as the capital-value of titles of
ownership (stocks) on the one hand and on the other hand as the
actual capital invested, or to be invested, in thofee enterprises.
It exists only in the latter form, and a share of stock is merely a
title of ownership to a corresponding portion of the surplus-value
to be realised by it. A may sell this title to B, and B may sell it
to C. These transactions do not alter anything in the nature of
the problem. A or B then has his title in the form of capital, but

COMPONENT PARTS OF BANK CAPITAL

467

C has transformed his capital into a mere title of ownership to
the anticipated surplus-value from the stock capital.

The independent movement of the value of these titles of owner¬
ship, not only of government bonds but also of stocks, adds weight
to the illusion that they constitute real capital alongside of the
capital or claim to which they may have title. For they become
commodities, whose price has its own characteristic movements
and is established in its own way. Their market-value is deter¬
mined differently from their nominal value, without any change
in the value (even though the expansion may change) of the actual
capital. On the one hand, their market-value fluctuates with the
amount and reliability of the proceeds to which they afford legal
title. If the nominal value of a share of stock, that is, the invested
sum originally represented by this share, is £100, and the enter¬
prise pays 10% instea'd of 5%, then its market-value, everything
else remaining equal, rises to £200, as long as the rate of interest
is 5%, for when capitalised at 5%, it now represents a fictitious
capital of £200. Whoever buys it for £200 receives a revenue
of 5% on this investment of capital. The converse is true when
the proceeds from the enterprise diminish. The market-value of
this paper is in part speculative, since it is determined not only
by the actual income, but also by the anticipated income, which
is calculated in advance. But assuming the expansion of the actual
capital as constant, or where no capital exists, as in the case of
state debts, the annual income to be fixed by law and otherwise
sufficiently secured, the price of these securities rises and falls
inversely as the rate of interest. If the rate of interest rises from
5% to 10%, then securities guaranteeing an income of £5 will
now represent a capital of only £50. Conversely, if the rate of
interest falls to 21/2%,< the same securities will represent a capital
of £200. Their value is always merely capitalised income, that
is, the income calculated on the basis of a fictitious capital at
the prevailing rate of interest. Therefore, when the money-market
is tight these securities will fall in price for two reasons: first,
because the rate of interest rises, and secondly, because they are
thrown on the market in large quantities in order to convert them
into cash. This drop in price takes place regardless of whether
the income that this paper guarantees its owner is constant, as
is the case with government bonds, or whether the expansion
of the actual capital, which it represents, as in industrial
enterprises, is possibly affected by disturbances in the reproduction
process. In the latter event, there is only still another deprecia¬
tion added to that mentioned above. As soon as the storm is over,

468

DIVISION OF PROFIT

this paper again rises to its former level, in so far as it does not
represent a business failure or swindle. Its depreciation in times
of crisis serves as a potent means of centralising fortunes.2

To the extent that the depreciation or increase in value of this
paper is independent of the movement of value of the actual capi¬
tal that it represents, the wealth of the nation is just as great
before as after its depreciation or increase in value. “The public
stocks and canal and railway shares had already by the 23rd of
October, 1847, been depreciated in the aggregate to the amount
of £114,752,225.” (Morris, Governor of the Bank of England,
testimony in the Report on Commercial Distress, 1847-48
[No. 3800].) Unless this depreciation reflected an actual stoppage
of production and of traffic on canals and railways, or a suspension
of already initiated enterprises, or squandering capital in posi¬
tively worthless ventures, the nation did not grow one cent
poorer by the bursting of this soap bubble of nominal money-
capital.

All this paper actually represents nothing more than accumu¬
lated claims, or legal titles, to future production whose money
or capital value represents either no capital at all, as in the case
of state debts, or is regulated independently of the value of real
capital which it represents.

In all countries based on capitalist production, there exists
in this foreman enormous quantity of so-called interest-bearing
capital, or moneyed capital. And by accumulation of money-
capital nothing more, in the main, is connoted than an accumu¬
lation of these claims on production, an accumulation of the
market-price, the illusory capital-value of these claims.

A part of the banker’s capital is now invested in this so-called
interest-bearing paper. This is itself a portion of the reserve capi¬
tal, which does not perform any function in the actual business
of banking. The most important portion of this paper consists
of bills of exchange, that is, promises to pay made by industrial
capitalists or merchants. For the money-lender these bills of ex-

1 [Immediately after the February Revolution, when commodities and
securities were extremely depreciated and utterly unsaleable, a Swiss mer¬
chant in Liverpool, Mr. R. Zwilchenbart — who told this to my father —
cashed all his belongings, travelled with cash in hand to Paris and sought out
Rothschild, offering to participate in a joint enterprise with him. Rothschild
looked at him fixedly, rushed towards him, grabbed him by his shoulders
and asked: “Avez-vous de Vargent sur vous ?" — “Out, M. le baron." — “Alors
vous etes mon homme!” (“Have you money in your possession?" — “Yes,
Baron." — “Then you are my man!”) — And they did a thriving business
together. — F. E. ]

COMPONENT PARTS OF BANK CAPITAL 469

change are interest-bearing, in other words, when he buys them,
he deducts interest for the time which they still have to run.
This is called discounting. It depends on the prevailing rate of
interest, how much of a deduction is made from the sum repre¬
sented by the bill of exchange.

Finally, the last part of the capital of a banker consists of his
money reserve in gold and notes. The deposits, unless tied up by
agreement for a certain time, are always at the disposal of the de¬
positors. They are in a state of continual fluctuation. But while
one depositor draws on his account, another deposits, so that the
general average sum total of deposits fluctuates little during
periods of normal business.

The reserve funds of the banks, in Countries with developed cap¬
italist production, always express on the average the quantity of
money existing in the form of a hoard, and a portion of this hoard
in turn consists of paper, mere drafts upon gold, which have no val¬
ue in themselves. The greater portion of banker’s capital is, there¬
fore, purely fictitious and consists of claims (bills of exchange),
government securities (which represent spent capital), and stocks
(drafts on future revenue). And it should not be forgotten that the
money-value of the capital represented by this paper in the safes
of the banker is itself fictitious, in so far as the paper consists
of drafts on guaranteed revenue (e.g., government securities), or
titles of ownership to real capital (e.g., stocks), and that this
value is regulated differently from that of the real capital, which
the paper represents at least in part; or, when it represents mere
claims on revenue and no capital, the claim on the same revenue
is expressed in continually changing fictitious money-capital.
In addition to this, it must be noted that this fictitious banker’s
capital represents largely, not his own capital, but that of the pub¬
lic, which makes deposits with him, either interest-bearing or
not.

Deposits are always made in money, in gold or notes, or in drafts
upon these. With the exception of the reserve fund, which con¬
tracts or expands in accordance with the requirements of actual
circulation, these deposits are in fact always in the hands of the
industrial capitalists and merchants, on the one hand, whose
bills of exchange are thereby discounted and who thus receive
advances; on the other hand, they are in the hands of dealers in
securities (exchange brokers), or in the hands of private parties
who have sold their securities, or in the hands of the government (in
the case of treasury notes and new loans). The deposits themselves
play a double role. On the one hand, as we have just mentioned.

16—2494

470

DIVISION OF PROFIT

they are loaned out as interest-bearing capital and are, therefore,
not in the safes of the banks, but figure merely on their books
as credits of the depositors. On the other hand, they function
merely as such book entries, in so far as the mutual claims of the
depositors are balanced by cheques on their deposits and can be
written off against each other. In this connection, it is immate¬
rial whether these deposits are entrusted to the same banker, who
can thus balance the various accounts against each other, or
whether this is done in different banks, which mutually exchange
cheques and pay only the balances to one another.

With the development of interest-bearing capital and the credit
system, all capital seems to double itself, and sometimes treble
itself, by the various modes in which the same capital, or perhaps
even the same claim on a debt, appears in different forms in differ¬
ent hands.3 The greater portion of this “money-capital ” is purely
fictitious. All the deposits, with the exception of the reserve
fund, are merely claims on the banker, which, however, never exist
as deposits. To the extent that they serve in clearing-house trans¬
actions, they perform the function of capital for the bankers —
after the latter have loaned them out. They pay one another their
mutual drafts upon the non-existing deposits by balancing their
mutual accounts.

Adam Smith says with regard to the role played by capital in
the loaning of money: “Even in the moneyed interest, however,

* [This doubling and trebling of capital has developed considerably
further in recent years, for instance, through financial trusts, which already
occupy a heading of their own in the report of the London Stock Exchange.
A company is organised for the purchase of a certain class of interest-bearing
paper, e.g., of foreign government securities, English municipal or American
public bonds, railway stocks, etc. The capital, for example, £2 million, is
raised by stock subscriptions. The Board of Directors buys up the values
in question or speculates more or less actively therein, and after deducting
the expenses distributes among the stockholders the annual interest as
dividends. Furthermore, some stock companies have adopted the custom of
dividing the common stock into two classes, preferred and deferred. The
preferred receive a fixed rate of interest, say, 5%, provided that the total
profit permits it; if there is anything left after that, the deferred receive it.
In this manher, the “solid" investment of capital in preferred. shares is more
or less separated from actual speculation— with deferred shares. Since a few
large enterprises have been unwilling to adopt this new custom, the expedient
has been resorted to of organising new companies which invest a million or
several million pounds sterling, in shares of the former companies and then
issue new shares amounting to the nominal value of the purchased shares,
but half of them are issued as preferred and the other half as deferred. In such
cases the original shares are doubled, since they serve as a basis for a new
issue of shares.— F. E. ]

COMPONENT PARTS OP BANK CAPITAL

471

the money is, as it were, but the deed of assignment which conveys
from one hand to another those capitals which the owners do not
care to employ themselves. Those capitals may be greater in
almost any proportion than the amount of the money, which serves
as the instrument of their conveyance, the same pieces of money
successively serving for many different loans, as well as for many
different purchases. A, for example, lends to W £1,000, with
which W immediately purchases of B £1,000 worth of goods.
B, having no occasion for the money himself, lends the identical
pieces to X, with which X immediately purchases of C another
£1,000 worth of goods. C, in the same manner, and for the same
reason, lends them to Y, who again purchases goods with them
of D. In this manner the same pieces, either of coin or of paper,
may, in the course of a few days, serve as the instrument of three
different loans, and of three different purchases, each of which
is, in value, equal to the whole amount of those pieces. What the
three moneyed men, A, B and C, assign to the three borrowers,
W, X and Y, is the power of making those purchases. In this
power consist both the value and the use of the loans. The stock
lent by the three moneyed men is equal to the value of the goods
which can be purchased with it, and is three times greater than
that of the money with which the purchases are made. Those
loans, however, may be all perfectly well secured, the goods pur¬
chased by the different debtors being so employed, as, in due
time, to bring back, with a profit, an equal value either of coin
or of paper. And as the same pieces of money can thus serve as
the instrument of different loans to three, or for the same reason,
to thirty times their value, so they may likewise successively
serve as the instrument of repayment. ” ( [An Inquiry into the
Nature and Causes of the Wealth of Nations, Aberdeen, London,
1848, p. 236.— Ed.] Book II, Chap. IV.)

Since the same piece of money can be used for various pur¬
chases, corresponding to its velocity of circulation, it can similarly
be used for various loans, since the purchases take it from one
person to another, and a loan is but a transfer from one person
to another without the mediation of a purchase. To every seller,
money represents the transformed shape of his commodities.
Nowadays, when every value is expressed as capital-value, it
represents in the various loans various capitals in succession.
This is simply another way of expressing the earlier statement
that it can successively realise various commodity-values. At the
same time it serves as a medium of circulation, in order to transfer
the real capitals from person to person. In the case of loans, it

472

DIVISION OP PROFIT

does not pass from person to person as a medium of circulation.
As long as it remains in the hands of the lender, it is in his hands
not a medium of circulation, but the value existence of his capi¬
tal. And in this form he transfers it when lending it to another.
If A had lent the money to B, and B to C, without the mediation
of purchases, the same money would not represent three capitals,
but only one — a single capital-value. The number of capitals
which it actually represents depends on the number of times
that it functions as the value-form of various commodity-
capitals.

The same thing that Adam Smith says about loans in general
also applies to deposits, which are merely another name for
the loans which the public makes to the bankers. The same
pieces of money may serve as the instruments for any number
of deposits.

“It is unquestionably true that the £1,000 which you deposit
at A today may be reissued tomorrow, and form a deposit at B.
The day after that, reissued from B, it may form a deposit at G...
and so on to infinitude; and that the same £1,000 in money may,
thus, by a succession of transfers, multiply itself into a sum of
deposits absolutely indefinite. It is possible, therefore, that nine-
tenths of all the deposits in the United Kingdom may have no
existence beyond their record in the books of the bankers who are
respectively accountable for them.... Thus in Scotland, for in¬
stance, currency has never exceeded £3 million, the deposits in
the banks are estimated at £27 million. Unless a run on the banks
be made, the same £1,000 would, if sent back upon its travels,
cancel with the same facility a sum equally indefinite. As the same
£1,000, with which you cancel your debt to a tradesman today,
may cancel his debt to the merchant tomorrow, the merchant’s
debt to the bank the day following, and so on without end; so the
same £1,000 may pass from hand to hand, and bank to bank,
and cancel any conceivable sum of deposits.” (The Currency
Theory Reviewed, pp. 62-63.)

Just as everything in this credit system is doubled and trebled
and transformed into a mere phantom of the imagination, so it is
with the “reserve fund,” where one would at last hope to grasp
on to something solid.

Let us listen once more to Mr. Morris, Governor of the Bank of
England: “The reserves of the private bankers are in the hands of
the Bank of England in the shape of deposits.... An export of
gold acts exclusively, in the first instance, upon the reserve of the
Bank of England; but it would also be acting upon the reserves

COMPONENT PARTS OF BANK CAPITAL

473

of the bankers, inasmuch as it is a withdrawal of a portion of the
reserves which they have in the Bank of England. It would be
acting upon the reserves of all the bankers throughout the coun¬
try. ” (Commercial Distress, 1847-48, Nos. 3639, 3642.) Ultimately,
then, the reserve funds actually merge with the reserve fund of
the Bank of England.4 However, this reserve fund also has a
double existence. The reserve fund of the banking department
is equal to the surplus of notes which the Bank is authorised to
issue over and above the notes in circulation. The legal maxi¬
mum of the note issue is £14 million (for which no bullion reserve
is required; it is the approximate amount owed by the state to the
Bank) plus the amount of the Bank’s supply of precious metal.
If the supply of precious metal in the Bank amounts to £14 mil¬
lion, the Bank can thus issue £28 million in notes, and if £20
million of these are in circulation, the reserve fund of the banking
department is £8 million. These £8 million’s worth of notes are
then legally the banker’s capital at the disposal of the Bank,
and at the same time the reserve fund for its deposits. Now, if
a drain of gold takes p\ace, whereby the supply of precious metal

4 [To what extent this has intensified since then is shown by the follow¬
ing official tabulation of the bank reserves of the fifteen largest London
banks in November 1892, taken from the Dally News of December 15, 1892:

Name of Bank

Liabilities

Cash Reserves

Percentages

City .

*9,317,629

*746,551

8.01

Capital and Counties

11,392,744

1,307,483

11.47

Imperial .

3,987.400

447,157

11.22

Lloyds .

23,800,937

2,966,806

12.46

Lon. and Westminster .

24,671,559

3,818,885

15.50

Lon. and S Western . .

5,570,268

812,353

14.58

London Joint Stock

12,127,993

1,288,977

10.62

London and Midland . .

8,814,499

1,127,280

12.79

London and County

37,111,035

3,600,374

9.70

National .

11,163,829

1,426,225

12.77

National Provincial . . .

41,907,384

4,614,780

11.01

Parrs and the Alliance .

12,794,489

1,532,707

11.98

Prescott u Co .

4,041,058

538,517

13.07

Union of London . .

15,502,618

2,300,084

14.84

Williams, Deacon u

Manchester u Co.

10,452,381

1,317,628

12.60

Total .

*232,655,823

*27,845,807

11.97

i J

474 DIVISION OF PROFIT

in the Bank is reduced by £6 million — requiring the destruction
of an equivalent number of notes — the reserve of the banking
department would fall from £8 million to £2 million. On the
one hand, the Bank would raise its rate of interest considerably;
on the other hand, the banks having deposits with it, and the other
depositors, would observe a large decrease in the reserve fund cov¬
ering their own credits in the Bank. In 1857, the four largest stock
banks of London threatened to call in their deposits, and thereby
bankrupt the banking department, unless the Bank of England
would secure a “government letter” suspending the Bank Act of
1844.® In this way the banking department could fail, as in 1847,
while any number of millions (e.g., 8 million in 1847) are held in
its issue department to guarantee the convertibility of the cir¬
culating notes. But this is again illusory.

“That large portion (of deposits) for which the bankers them¬
selves have no immediate demand passes into the hands of the
bill-brokers, who give to the banker in return commercial bills
already discounted by them for persons in London and in differ¬
ent parts of the country as a security for the sum advanced by
the banker. The bill-broker is responsible to the banker for pay¬
ment of this money at call; and such is the magnitude of these
transactions, that Mr. Neave, the present Governor of the Bank
[of England], stated in evidence, ‘We know that one broker
had 5 million, and we were led to believe that another had
between 8 and 10 million; there was one with 4, another
with 31/,, and a third with above 8. I speak of deposits with the
brokers.’” (Report of Committee on Bank Acts, 1857-58, p. 5,
Section 8.)

‘The London bill-brokers carried on their enormous transac¬
tions without any cash reserve, relying on the run off of their bills
falling due, or in extremity, on the power of obtaining advances
from the Bank of England on the security of bills under discount. ”
Ibid., p. VIII, Section 17. “Two bill-broking houses in London

Of this total reserve of almost 28 million, at least 25 million are deposit¬
ed in the Bank of England, and at most 3 million are in cash in the safes of
the 15 banks themselves. But the cash reserve of the banking department
of the Bank of England amounted to less than 16 million during that same
month of November 1892. — F.E.]

* The suspension of the Bank Act of 1844 permits the Bank to issue any
quantity of bank-notes regardless of the gold reserve backing in its posses¬
sion; thus, to create an arbitrary quantity of Gctitious paper money-capital,
and to use it for the purpose of making loans to banks, exchange brokers,
and through them to commerce.— [f. E. ]

COMPONENT PARTS OF BANK CAPITAL

475

suspended payment in 1847; both afterwards resumed business.
In 1857, both suspended again. The liabilities of one house in
1847 were, in round numbers, £2,683,000, with a capital of
£180,000; the liabilities of the same house, in 1857, were
£5,300,000, the capital probably not more than one-fourth of
what it was in 1847. The liabilities of the other firm were
between £3,000,000 and £4,000,000 at each period of stoppage,
with a capital not exceeding £45,000. ” (Ibid., p. XXI, Section 52.)

CHAPTER XXX

MONEY-CAPITAL AND REAL CAPITAL. I

The only difficult questions, which we are now approaching in
connection with the credit system, are the following:

First: The accumulation of the actual money-capital. To what
extent is it, and to what extent is it not, an indication of an
actual accumulation of capital , i.e., of reproduction on an extended
scale? Is the so-called plethora of capital — an expression used
only with reference to the interest-bearing capital, i.e., moneyed
capital — only a special way of expressing industrial over-produc¬
tion, or does it constitute a separate phenomenon alongside of it?
Does this plethora, or excessive supply of money-capital, coin¬
cide with the existence of stagnating masses of money (bullion,
gold coin and bank-notes), so that this superabundance of actual
money is the expression and external form of that plethora of
loan capital?

Secondly: To what extent does a scarcity of money, i.e., a short¬
age of loan capital, express a shortage of real capital (commodity-
capital and productive capital)? To what extent does it coincide,
on the other hand, with a shortage of money as such, a shortage
of the medium of circulation?

In so far as we have hitherto considered the peculiar form of
accumulation of money-capital and of money wealth in general,
it has resolved itself into an accumulation of claims of ownership
upon labour. The accumulation of the capital of the national debt
has been revealed to mean merely an increase in a class of state
creditors, who have the privilege of a firm claim upon a certain
portion of the tax revenue.6 By means of these facts, whereby

s The public fund is nothing but imaginary capital, which represents
that portion of the annual revenue, which is set aside to pay the debt. An

MONEY-CAPITAL AND REAL CAPITAL. I

477

even an accumulation of debts may appear as an accumulation of
capital, the height of distortion taking place in the credit system
becomes apparent. These promissory notes, which are issued for
the originally loaned capital long since spent, these paper dupli¬
cates of consumed capital, serve for their owners as capital to the
extent that they are saleable commodities and may, therefore, be
reconverted into capital.

Titles of ownership to public works, railways, mines, etc., are
indeed, as we have also seen, titles to real capital. But they do not
place this capital at one’s disposal. It is not subject to withdrawal.
They merely convey legal claims to a portion of the surplus-value
to be produced by it. But these titles likewise become paper
duplicates of the real capital; it is as though a bill of lading were to
acquire a value separate from the cargo, both concomitantly and
simultaneously with it. They come to nominally represent non¬
existent capital. For the real capital exists side by side with them
and does not change hands as a result of the transfer of these
duplicates from one person to another. They assume the form of
interest-bearing capital, not only because they guarantee a certain
income, but also because, through their sale, their repayment
as capital-values can be obtained. To the extent that the accu¬
mulation of .this paper expresses the accumulation of railways,
mines, steamships, etc., to that extent does it express the exten¬
sion of the actual reproduction process — just as the extension of,
for example, a tax list on movable property indicates the expan¬
sion of this property. But as duplicates which are themselves
objects of transactions as commodities, and thus able to circulate
as capital-values, they are illusory, and their value may fall or rise
quite independently of the movement of value of the real capital
for which they are titles. Their value, that is, their quotation
on the Stock Exchange, necessarily has a tendency to rise with
a fall in the rate of interest — in so far as this fall, independent of
the characteristic movements of money-capital, is due merely

equivalent amount of capital has been spent; it is this which serves as a de¬
nominator for the loan, but it is not this which is represented by the public
fund; for the capital no .longer exists. New wealth must be created by the
work of industry; a portion of this wealth is annually set aside in advance
for those who have loaned that wealth which has been spent; this portion is
taken by means of taxes from those who produce it, and is given to the credi¬
tors of the state, and, according to the customary proportion between capital
and interest in the country, an imaginary capital is assumed equivalent to
that which could give rise to the annual income which these creditors are to
receive. (Sismondi, Nouveaux prlncipes [Seconde Edition, Paris, 1827],
II, p. 230.)

478

DIVISION OF PROFIT

to the tendency for the rate of profit to fall; therefore, this imagi¬
nary wealth expands, if for this reason alone, in the course of capi¬
talist production in accordance with the expressed value for each
of its aliquot parts of specific original nominal value.7

Gain and loss through fluctuations in the price of these titles
of ownership, and their centralisation in the hands of railway
kings, etc., become, by their very nature, more and more a matter
of gamble, which appears to take the place of labour as the
original method of acquiring capital wealth and also replaces naked
force. This type of imaginary money wealth not only constitutes
a very considerable part of the money wealth of private people,
but also of banker’s capital, as we have already indicated.

In order to quickly settle this question, let us point out that
one could also mean by the accumulation of money-capital the
accumulation of wealth in the hands of bankers (money-lenders
by profession), acting as middlemen between private money-
capitalists on the one hand, and the state, communities, and
reproducing borrowers on the other. For the entire vast extension
of the credit system, and all credit in general, is exploited by them
as their private capital. These fellows always possess capital and
incomes in money-form or in direct claims on money. The accu¬
mulation of the wealth of this class may take place completely
differently than actual accumulation, but it proves at any rate
that this class pockets a good deal of the real accumulation.

Let us reduce the scope of the problem before us. Government
securities, like stocks and other securities of all kinds, are spheres
of investment for loanable capital — capital intended for bearing
interest. They are forms of loaning such capital. But they them¬
selves are not the loan capital, which is invested in them. On the
other hand, in so far as credit plays a direct role in the reproduc¬
tion process, what the industrialist or merchant needs when he
wishes to have a bill discounted or a loan granted is neither
stocks nor government securities. What he needs is money. He,
therefore, pledges or sells those securities if he cannot secure
money in any other way. It is the accumulation of this loan capi¬
tal with which we have to deal here, and more particularly ac-

7 A portion of the accumulated loanable money-capital is indeed merely
an expression of industrial capital. For instance, when England, in 1857,
had invested £80 million in American railways and other enterprises, this
investment was transacted almost completely by the export of English
commodities for which the Americans did not have to make payment in
return. The English exporter drew bills of exchange for these commodities
on America, which the English stock subscribers bought up and which were
sent to America for purchasing the stock subscriptions.

MONEY-CAPITAL AND REAL CAPITAL. I

479

cumulation of loanable money-capital. We are not concerned
here with loans of houses, machines, or other fixed capital. Nor
are we concerned with the advances industrialists and merchants
make to one another in commodities and within the compass
of the reproduction process; although we must also investigate
this point beforehand in more detail. We are concerned exclu¬
sively with money loans, which are made by bankers, as middle¬
men, to industrialists and merchants.

Let us then, to begin with, analyse commercial credit, that is,
the credit which the capitalists engaged in reproduction give to
one another. It forms the basis of the credit system. It is repre¬
sented by the bill of exchange, a promissory note with a definite
term of payment, i.e., a document of deferred payment. Everyone
gives credit with one hand and receives credit with the other.
Let us completely disregard, for the present, banker’s credit,
which constitutes an entirely different sphere. To the extent
that these bills of exchange circulate among the merchants them¬
selves as means of payment again, by endorsement from one to
another — without, however, the mediation of discounting — it is
merely a transfer of the claim from A to B and does not change
the picture in the least. It merely replaces one person by another.
And even in this case, the liquidation can take place without
the intervention of money. Spinner A, for example, has to pay
a bill to cotton broker B, and the latter to importer C. Now, if
C also exports yarn, which happens often enough, he may buy
yarn from A on a bill of exchange and the spinner A may pay
the broker B with the broker’s own bill which was received in
payment from C. At most, a balance will have to be paid in
money. The entire transaction then consists merely in the exchange
of cotton and yarn. The exporter represents only the spinner,
and the cotton broker, the cotton planter.

Two things are now to be noted in the circuit of this purely com¬
mercial credit.

First: The settlement of these mutual claims depends upon the
return flow of capital, that is, on C— M, which is merely deferred.
If the spinner has received a bill of exchange from a cotton goods
manufacturer, then manufacturer can pay if the cotton goods
which he has on the market have been sold in the interim. If the
corn speculator has a bill of exchange drawn upon his agent, the
agent can pay the money if the corn has been sold in the interim
at the expected price. These payments, therefore, depend on the

480 DIVISION OF PROFIT

fluidity of reproduction, that is, the production and consumption
processes. But since the credits are mutual, the solvency of one
depends upon the solvency of another; for in drawing his bill of
exchange, one may have counted either on the return flow of the
capital in his own business or on the return flow of the capital
in a third party's business whose bill of exchange is due in the
meantime. Aside from the prospect of return flow of capital, payment
can only be possible by means of reserve capital at the disposal
of the person drawing the bill of exchange, in order to meet his
obligations in case the return flow of capital should be delayed.

Secondly. This credit system does not do away with the necessi¬
ty for cash payments. For one thing, a large portion of expenses
must always be paid in cash, e.g., wages, taxes, etc. Furthermore,
capitalist B, who has received from C a bill of exchange in place
of cash payment, may have to pay a bill of his own which has
fallen due to D before C’s bill becomes due, and so he must have
ready cash. A complete circuit of reproduction as that assumed
above, i.e., from cotton planter to cotton spinner and back again,
can only constitute an exception; it will be constantly interrupted
at many points. We have seen in the discussion of the reproduction
process (Book II, Part III*) that the producers of constant capital
exchange, in part, constant capital among themselves. As a result,
the bills of exchange can, more or less, balance each other out.
Similarly, in the ascending line of production, where the cotton
broker draws on the cotton spinner, the spinner on the manufac¬
turer of cotton goods, the manufacturer on the exporter, the ex¬
porter on the importer (perhaps of cotton again). But the circuit
of transactions, and, therefore, the turn about of the series of
claims, does not take place at the same time. For example, the
claim of the spinner on the weaver is not settled by the claim
of the coal-dealer on the machine-builder. The spinner never
has any counter-claims on the machine-builder, in his business,
because his product, yarn, never enters as an element in the
machine-builder’s reproduction process. Such claims must, there¬
fore, be settled by money.

The limits of this commercial credit, considered by themselves,
are 1) the wealth of the industrialists and merchants, that is,
their command of reserve capital in case of delayed returns;
2) these returns themselves. These returns may be delayed, or
the prices of commodities may fall in the meantime or the com¬
modities may become momentarily unsaleable due to a stagnant

English edition: Vol. II, pp. 422-25.— Ed.

MONEY-CAPITAL AND REAL CAPITAL. I

481

market. The longer the bills of exchange run, the larger must
be the reserve capital, and the greater the possibility of a dimi¬
nution or delay of the returns through a fall in prices or a glut
on the market. And, furthermore, the returns are so much less
secure, the more the original transaction was conditioned upon
speculation on the rise or fall of commodity-prices. But it is evi¬
dent that with the development of the productive power of labour,
and thus of production on a large scale: 1) the markets expand
and become more distant from the place of production; 2) credits
must, therefore, he prolonged; 3) the speculative element must
thus more and more dominate the transactions. Production on
a large scale and for distant markets throws the total product
into the hands of commerce; but it is impossible that the capital
of a nation should double itself in such a manner that commerce
should itself be able to buy up the entire national product with
its own capital and to sell it again. Credit is, therefore, indis¬
pensable here; credit, whose volume grows with the growing
volume of value of production and whose time duration grows
with the increasing distance of the markets. A mutual interaction
takes place here. The development of the production process
extends the credit, and credit leads to an extension of industrial
and commercial operations.

When we examine this credit detached from banker’s credit, it
is evident that it grows with an increasing volume of industrial
capital itself. Loan capital and industrial capital are identical
here. The loaned capital is commodity-capital which is intended
either for ultimate individual consumption or for the replacement
of the constant elements of productive capital. What appears
here as loan capital is always capital existing in some definite
phase of the reproduction process, but which by means of purchase
and sale passes from one person to another, while its equivalent
is not paid by the buyer until some later stipulated time. For
example, cotton is transferred to the spinner for a bill of exchange,
yarn to the manufacturer of cotton goods for a bill of exchange,
cotton goods to the merchant for a bill, from whose hands they
go to the exporter for a bill, and then, for a bill to some merchant
in India, who sells the goods and buys indigo instead, etc. During
this transfer from hand to hand the transformation of cotton into
cotton goods is effected, and the cotton goods are finally trans¬
ported to India and exchanged for indigo, which is shipped to
Europe and there enters into the reproduction process again. The
various phases of the reproduction process are promoted here by
credit, without any payment on the part of the spinner for the

482

DIVISION OF PROFIT

cotton, the manufacturer of cotton goods for the yarn, the mer¬
chant for the cotton goods, etc. In the first stages of the process,
the commodity, cotton, goes through its various production
phases, and this transition is promoted by credit. But as soon as
the cotton has received in production its ultimate form as a com¬
modity, the same commodity-capital passes only through the
hands of various merchants who promote its transportation to
distant markets, and the last of whom finally sells these commod¬
ities to the consumer and buys other commodities in their stead,
which either become consumed or go into the reproduction proc¬
ess. It is necessary, then, to differentiate between two stages here:
in the first stage, credit promotes the actual successive phases
in the production of the same article; in the second, credit merely
promotes the transfer of the article, including its transportation,
from one merchant to another, in other words, the process C — M.
But here also the commodity is at least in the process of circulation,
that is, in a phase of the reproduction process.

It follows, then, that it is never idle capital which is loaned
here, but capital which must change its form in the hands of its
owner; it exists in a form that for him is merely commodity-capi¬
tal, i.e., capital which must be retransformed, and, to begin with,
at least converted into money. It is, therefore, the metamorpho¬
sis of commodities that is here promoted by credit; not merely
C — M, but also M— C and the actual production process. A large
quantity of credit within the reproductive circuit (banker’s cred¬
it excepted) does not signify a large quantity of idle capital,
which is being offered for loan and is seeking profitable invest¬
ment. It means rather a large employment of capital in the re¬
production process. Credit, then, promotes here 1) as far as the
industrial capitalists are concerned, the transition of industrial
capital from one phase into another, the connection of related
and dovetailing spheres of production; 2) as far as the merchants
are concerned, the transportation and transition of commodi¬
ties from one person to another until their definite sale for money
or their exchange for other commodities.

The maximum of credit is here identical with the fullest em¬
ployment of industrial capital, that is, the utmost exertion of its
reproductive power without regard to the limits of consumption.
These limits of consumption are extended by the exertions of the
reproduction process itself. On the one hand, this increases the
consumption of revenue on the part of labourers and capitalists,
on the other hand, it is identical with an exertion of productive
consumption.

MONEY-CAPITAL AND REAL CAPITAL. I

483

As long as the reproduction process is continuous and, therefore,
the return flow assured, this credit exists and expands, and its
expansion is based upon the expansion of the reproduction proc¬
ess itself. As soon as a stoppage takes place, as a result of delayed
returns, glutted markets, or fallen prices, a superabundance of
industrial capital becomes available, but in a form in which it
cannot perform its functions. Huge quantities of commodity-capi¬
tal, but unsaleable. Huge quantities of fixed capital, but largely
idle due to stagnant reproduction. Credit is contracted 1) because
this capital is idle, i.e., blocked in one of its phases of reproduction
because it cannot complete its metamorphosis; 2) because confi¬
dence in the continuity of the reproduction process has been shaken;
3) because the demand for this commercial credit diminishes.
The spinner, who curtails his production and has a large quantity
of unsold yam in stock, does not need to buy any cotton on credit;
the merchant does not need to buy any commodities on credit
because he has more than enough of them.

Hence, if there is a disturbance in this expansion or even in the
normal flow of the reproduction process, credit also becomes
scarce; it is more difficult to obtain commodities on credit. How¬
ever, the demand for cash payment and the caution observed
toward sales on credit are particularly characteristic of the phase
of the industrial cycle following a crash. During the crisis itself,
since everyone has products to sell, cannot sell them, and yet
must sell them in order to meet payments, it is not the mass of
idle and investment-seeking capital, but rather the mass of capi¬
tal impeded in its reproduction process, that is greatest just
when the shortage of credit is most acute (and therefore the rate
of discount highest for banker’s credit). The capital already in¬
vested is then, indeed, idle in large quantities because the repro¬
duction process is stagnant. Factories are closed, raw materials
accumulate, finished products flood the market as commodities.
Nothing is more erroneous, therefore, than to blame a scarcity
of productive capital for such a condition. It is precisely at such
times that there is a superabundance of productive capital, partly
in relation to the normal, but temporarily reduced scale of repro¬
duction, and partly in relation to the paralysed consumption.

Let us suppose that the whole of society is composed only of
industrial capitalists and wage-workers. Let us furthermore
disregard price fluctuations, which prevent large portions of the
total capital from replacing themselves in their average propor¬
tions and which, owing to the general interrelations of the entire
reproduction process as developed in particular by credit, must

484

DIVISION OP PROFIT

always call forth general stoppages of a transient nature. Let us
also disregard the sham transactions and speculations, which tho
credit system favours. Then, a crisis could only be explained as
the result of a disproportion of production in various branches
of the economy, and as a result of a disproportion between
the consumption of the capitalists and their accumulation. But
as matters stand, the replacement of the capital invested in pro¬
duction depends largely upon the consuming power of the non¬
producing classes; while the consuming power of the workers
is limited partly by the laws of wages, partly by the fact that
they are used only as long as they can be profitably employed
by the capitalist class. The ultimate reason for all real crises
always remains the poverty and restricted consumption of the
masses as opposed to the drive of capitalist production to de¬
velop the productive forces as though only the absolute consuming
power of society constituted their limit.

A real lack of productive capital, at least among capitalisti¬
cally developed nations, can be said to exist only in times of
general crop failures, either in the principal foodstuffs or in the
principal industrial raw materials.

However, in addition to this commercial credit we have actual
money credit. The advances of the industrialists and merchants
among one another are amalgamated with the money advances
made to them by the bankers and money-lenders. In discounting
bills of exchange the advance is only nominal. A manufacturer
sells his product for a bill of exchange and gets this bill discount¬
ed by some bill-broker. In reality, the latter advances only the
credit of his banker, who in turn advances to the broker the
money-capital of his depositors. The depositors consist of the in¬
dustrial capitalists and merchants themselves and also of workers
(through savings-banks) — as well as ground-rent recipients and
other unproductive classes. In this way every individual indus¬
trial manufacturer and merchant gets around the necessity of
keeping a large reserve fund and being dependent upon his ac¬
tual returns. On the other hand, the whole process becomes so
complicated, partly by simply manipulating bills of exchange,
partly by commodity transactions for the sole purpose of manu¬
facturing bills of exchange, that the semblance of a very solvent
business with a smooth flow of 'returns can easily persist even
long after returns actually come in only at the expense partly
of swindled money-lenders and partly of swindled producers.
Thus business always appears almost excessively sound right
on the eve of a crash. The best proof of this is furnished, for in-

MONEY-CAPITAL AND REAL CAPITAL. I

485

stance, by the Reports on Bank Acts of 1857 and 1858, in which
all bank directors, merchants, in short all the invited experts
with Lord Overstone at their head, congratulated one another
on the prosperity and soundness of business — just one month
before the outbreak of the crisis in August 1857. And, strangely
enough, Tooke in his History of Prices succumbs to this illusion
once again as historian for each crisis. Business is always thor¬
oughly sound and the campaign in full swing, until suddenly
the debacle takes place.

We revert now to the accumulation of money-capital.

Not every augmentation of loanable money-capital indicates a
real accumulation of capital or expansion of the reproduction
process. This becomes most evident in the phase of the industrial
cycle immediately following a crisis, when loan capital lies around
idle in great quantities. At such times, when the production
process is curtailed (production in the English industrial districts
was reduced by one-third after the crisis of 1847), when the prices
of commodities are at their lowest level, when the spirit of
enterprise is paralysed, the rate of interest is low, which in this case
indicates nothing more than an increase in loanable capital pre¬
cisely as a result of contraction and paralysation of industrial
capital. It is quite obvious that a smaller quantity of a circula¬
tion medium is required when the prices of commodities have
fallen, the number of transactions decreased, and the capital laid
out for wages reduced; that, on the other hand, no additional
money is required to function as world-money after foreign debts
have been liquidated either by the export of gold or as a result
of bankruptcies; that, finally, the volume of business connected
with discounting bills of exchange diminishes in proportion with
the reduced number and magnitudes of the bills of exchange them¬
selves. Hence the demand for loanable money-capital, either to
act as a medium of circulation or as a means of payment (the in¬
vestment of new capital is still out of the question), decreases
and this capital, therefore, becomes relatively abundant. Under
such circumstances, however, the supply of loanable money-
capital also increases, as we shall later see.

Thus, the situation after the crisis of 1847 was characterised
by “a limitation of transaction and a great superabundance of
money.” (Commercial Distress, 1847-48, Evidence No. 1664.)
The rate of interest was very low because of the “almost perfect
destruction of commerce and the almost total want of means

486

DIVISION OP PROFIT

of employing money” ( loc . cit ., p. 45, testimony of Hodgson,
Director of the Royal Bank of Liverpool). What nonsense these
gentlemen concocted (and Hodgson is, moreover, one of the best
of them) in order to explain these facts, can be seen from the fol¬
lowing remark: “The pressure” (1847) “arose from the real di¬
minution of the moneyed capital of the country, caused partly
by the necessity of paying in gold for imports from all parts of
the world, and partly by the absorption of floating into fixed cap¬
ital.” [1. c.,p. 39.] How the conversion of floating capital into fixed
capital reduces the money-capital of a country is unintelligible.
For, in the case of railways, e.g., in which capital was mainly in¬
vested at that time, neither gold nor paper is used for viaducts
and rails, and the money for the railway stocks, to the extent that
it had been deposited solely in payment, performed exactly the
same functions as any other money deposited in banks and even
increased the loanable money-capital temporarily, as already
shown above; but to the extent that it had actually been spent
for construction, it circulated in the country as a medium of pur¬
chase and of payment. Only in so far as fixed capital cannot
be exported, so that with the impossibility of its export the avail¬
able capital secured from returns for exported articles also drops
out of the picture — including the returns in cash or bullion — only
to that extent could the money-capital be affected. But at that
time English export articles were also piled up in huge quanti¬
ties op the foreign markets without being able to be sold. It is
true, the floating capital of the merchants and manufacturers
of Manchester, etc., who had a portion of their normal business
capital tied up in railway stocks and were therefore dependent
upon borrowed capital for running their business, had become
fixed, and they, therefore, had to suffer the consequences. But
it would have been the same, if the capital belonging to their
business, but withdrawn from it, had been invested, say, in
mines instead of railways — mining products like iron, coal, cop¬
per being themselves in turn floating capital. The actual reduc¬
tion of available money-capital through crop failures, corn imports,
and gold exports constituted, naturally, an event that had noth¬
ing to do with the railway swindle.— “Almost all mercantile
houses had begun to starve their business more or less ... by
taking part of their commercial capital for railways.” — “Loans to
so great an extent by commercial houses to railways \loc. cit.,
p. 42 ] induced them to lean too much upon ... banks by the
discount of paper, whereby to carry on their commercial opera¬
tions” (the same Hodgson, loc. cit., p. 67). “In Manchester there

MONEY-CAPITAL AND REAL CAPITAL. I

487

have been immense losses in consequence of the speculation in
railways” (R. Gardner, previously cited in Buch I, Kap. XIII,
3, c,* and in several other places; Evidence No. 4884, loc. cit.).

One of the principal causes of the crisis of 1847 was the colossal
flooding of the market and the fabulous swindle in the East
Indian trade with commodities. But there were also other circum¬
stances which bankrupted very rich firms in this line: “They
had large means, but not available. The whole of their capital
was locked up in estates in the Mauritius, or indigo factories,
or sugar factories. Having incurred liabilities to the extent of
£500,000-600,000, they had no available assets to pay their bills,
and eventually it proved that to pay their bills they were entire¬
ly dependent upon their credit. ” (Ch. Turner, big East Indian
merchant in Liverpool, No. 730, loc. cit.) See also Gardner
(No. 4872, loc. cit.): “Immediately after the China treaty, so
great a prospect was held out to the country of a great extension
of our commerce with China, that there were many large mills
built with a view to that trade exclusively, in order to manufac¬
ture that class of cloth which is principally taken for the China
market, and our previous manufactures had the addition of all
those.” — “4874. How has that trade turned out? — Most ruinous,
almost beyond description; I do not believe, that of the whole
of the shipments that were made in 1844 and 1845 to China, above
two-thirds of the amount have ever been returned; in consequence
of tea being the principal article of repayment and of the expec¬
tation that was held out, we, as manufacturers, fully calculated
upon a great reduction in the duty on tea. ” — And now, naively
expressed, comes the characteristic credo of the English manu¬
facturer: “Our commerce with no foreign market is limited by
their power to purchase the commodity, but it is limited in this
country by our capability of consuming that which we receive in
return for our manufactures. ” (The relatively poor countries, with
whom England trades, are, of course, able to pay for and con¬
sume any amount of English products, but unfortunately wealthy
England cannot assimilate the products sent in return.) — “4876.
I sent out some goods in the first instance, and the goods sold at
about 15 per cent loss, from the full conviction that the price, at
which my agents could purchase tea, would leave so great a profit
in this country as to make up the deficiency... but instead of profit,
I lost in some instances 25 and up to 50 per cent." — “4877. Did
the manufacturers generally export on their own account? — Prin-

• English edition: Ch. XV, 3, c. — Ed.

488

DIVISION OF PROFIT

cipally; the merchants, I think, very soon saw that the thing
would not answer, and they rather encouraged the manufactur¬
ers to consign than take a direct interest themselves.” — In 1857,
on the other hand, the losses and failures fell mainly upon the
merchants, since the manufacturers left them the task of flood¬
ing the foreign markets “on their own account. ”

An expansion of money-capital, which arises out of the fact
that, in view of the expansion of banking (see, below, the example
of Ipswich, where in the course of a few years immediately pre¬
ceding 1857 the deposits of the capitalist farmers quadrupled),
what was formerly a private hoard or coin reserve is always
converted into loanable capital for a definite time, does not in¬
dicate a growth in productive capital any more than the increas¬
ing deposits with the London stock banks when the latter began
to pay interest on deposits. As long as the scale of production
remains the same, this expansion leads only to an abundance of
loanable money-capital as compared with the productive. Hence
the low rate of interest.

After the reproduction process has again reached that state of
prosperity which precedes that of over-exertion, commercial credit
becomes very much extended; this forms, indeed, the “sound"
basis again for a ready flow of returns and extended production. In
this state the rate of interest is still low, although it rises above
its minimum. This is, in fact, the only time that it can be said a low
rate of interest, and consequently a relative abundance of loana¬
ble capital, coincides with a real expansion of industrial capital.
The ready flow and regularity of the returns, linked with extensive
commercial credit, ensures the supply of loan capital in spite of
the increased demand for it, and prevents the level of the rate of
interest from rising. On the other hand, those cavaliers who work
without any reserve capital or without any capital at all and who
thus operate completely on a money credit basis begin to appear
for the first time in considerable numbers. To this is now added the
great expansion of fixed capital in all forms, and the opening of
new enterprises on a vast and far-reaching scale. The interest now
rises to its average level. It reaches its maximum again as soon as
the* new crisis sets in. Credit suddenly stops then, payments are
suspended, the reproduction process is paralysed, and with the
previously mentioned exceptions, a superabundance of idle in¬
dustrial capital appears side by side with an almost absolute
absence of loan capital.

MONEY-CAPITAL AND REAL CAPITAL. I

489

On the whole, then, the movement of loan capital, as expressed
in the rate of interest, is in the opposite direction to that of
industrial capital. The phase wherein a low rate of interest, but
above the minimum, coincides with the “improvement” and grow¬
ing confidence after a crisis, and particularly the phase wherein
the rate of interest reaches its average level, exactly midway
between its minimum and maximum, are the only two periods
during which an abundance of loan capital is available simulta¬
neously with a great expansion of industrial capital. But at the
beginning of the industrial cycle, a low rate of interest coincides
with a contraction, and at the end of the industrial cycle, a high
rate of interest coincides with a superabundance of industrial
capital. The low rate of interest that accompanies the “improve¬
ment ” shows that the commercial credit requires bank credit only
to a slight extent beeause it is still self-supporting.

The industrial cycle is of such a nature that the same circuit
must periodically reproduce itself, once the first impulse has been
given.8 During a period of slack, production sinks below the
level, which it had attained in the preceding cycle and for which

6 [As I have already stated elsewhere [English edition: Vol. I, p. 6. —
Ed. ], a change has taken place here since the last major general crisis. The
acute form of the periodic process with its former ten-year cycle, appears
to have given way to a more chronic, long drawn out, alternation between a
relatively short and slight business improvement and a relatively long,
indecisive depression — taking place in the various industrial countries
at different times. But perhaps it is only a matter of a prolongation of the
duration of the cycle. In the early years of world commerce, 1815-47, it can
be shown that these cycles lasted about five years; from 1847 to 1867 the
cycle is clearly ten years; is it possible that we are now in the preparatory
stage of a new world crash of unparalleled vehemence? Many things seem to
point in this direction. Since the last general crisis of 1867 many profound
changes have taken place. The colossal expansion of the means of transpor¬
tation and communication— ocean liners, railways, electrical telegraphy,
the Suez Canal— has made a real world-market a fact. The former monopoly
of England in industry has been challenged by a number of competing
industrial countries; infinitely greater and varied fields have been opened
in all parts of the world for the investment of surplus European capital, so
that it is far more widely distributed and local over -speculation may be more
easily overcome. By means of all this, most of the old breeding-grounds
of crises and opportunities for their development have been eliminated or
strongly reduced. At the same time, competition in the domestic market
recedes before the cartels and trusts, while in the foreign market it is
restricted by protective tariffs, with which all major industrial countries,
England excepted, surround themselves. But these protective tariffs are
nothing but preparations for the ultimate general industrial war, which
shall decide who has supremacy on the world-market. Thus every factor,
which works against a repetition of the old crises, carries within itself the
germ of a far more powerful future crisis. — F. E. ]

490

DIVISION OF PROFIT

the technical basis has now been laid. During prosperity — the
middle period — it continues to develop on this basis. In the period
of over-production and swindle, it strains the productive forces
to the utmost, until it exceeds the capitalistic limits of the produc¬
tion process.

It is clear that there is a shortage of means of payment during a
period of crisis. The convertibility of bills of exchange replaces
the metamorphosis of commodities themselves, and so much
more so exactly at such times the more a portion of the firms
operates on pure credit. Ignorant and mistaken bank legislation,
such as that of 1844-45, can intensify this money crisis. But no
kind of bank legislation can eliminate a crisis.

In a system of production, where the entire continuity of the
reproduction process rests upon credit, a crisis must obviously
occur — a tremendous rush for means of payment — when credit
suddenly ceases and only cash payments have validity. At first
glance, therefore, the whole crisis seems to be merely a credit
and money crisis. And in fact it is only a question of the convert¬
ibility of bills of exchange into money. But the majority of these
bills represent actual sales and purchases, whose extension far
beyond the needs of society is, after all, the basis of the whole
crisis. At the same time, an enormous quantity of these bills of
exchange represents plain swindle, which now reaches the light
of day and collapses; furthermore, unsuccessful speculation with
the capital of other people; finally, commodity-capital which has
depreciated or is completely unsaleable, or returns that can never
more be realised again. The entire artificial system of forced ex¬
pansion of the reproduction process cannot, of course, be remedied
by having some bank, like the Bank of England, give to all the
swindlers the deficient capital by means of its paper and having
it buy up all the depreciated commodities at their old nominal
values. Incidentally, everything here appears distorted, since in
this paper world, the real price and its real basis appear nowhere,
but only bullion, metal coin, notes, bills of exchange, securities.
Particularly in centres where the entire money business of the
country is concentrated, like London, does this distortion become
apparent; the entire process becomes incomprehensible; it is less
so in centres of production.

Incidentally in connection with the superabundance of indus¬
trial capital which appears during crises the following should be
noted; commodity-capital is in itself simultaneously money-capi¬
tal, that is, a definite amount of value expressed in the price of
the commodities. As use-value it is a definite quantum of objects

MONEY-CAPITAL AND REAL CAPITAL. I

491

of utility, and there is a surplus of these available in times of
crises. But as money-capital as such, as potential money-capital,
it is subject to continual expansion and contraction. On the eve
of a crisis, and during it, commodity-capital in its capacity as
potential money-capital is contracted. It represents less money-
capital for its owner and his creditors (as well as security for
bills of exchange and loans) than it did at the tim'e when it was
bought and when the discounts and mortgages based on it were
transacted. If this is the meaning of the contention that the
money-capital of a country is reduced in times of stringency,
this is identical with saying that the prices of commodities have
fallen. Such a collapse in prices merely balances out their
earlier inflation.

The incomes of the unproductive classes and of those who live
on fixed incomes remain in the main stationary during the infla¬
tion of prices which goes hand in hand with over-production and
over-speculation. Hence their consuming capacity diminishes re¬
latively, and with it their ability to replace that portion of the
total reproduction which would normally enter into their consump¬
tion. Even when their demand remains nominally the same, it
decreases in reality.

It should be noted in regard to imports and exports, that, one
after another, all countries become involved in a crisis and that it
then becomes evident that all of them, with few exceptions, have
exported and imported too much, so that they all have an unfa¬
vourable balance of payments. The trouble, therefore, does not
actually lie with the balance of payments. For example, England
suffers from a drain of gold. It has imported too much. But at the
same time all other countries are over-supplied with English
goods. They have thus also imported too much, or have been
made to import too much. (There is, indeed, a difference between
a country which exports on credit and those which export little
or nothing on credit. But the latter then import on credit; and
this is only then not the case when commodities are sent to them
on consignment.) The crisis may first break out in England, the
country which advances most of the credit and takes the least,
because the balance of payments, the balance of payments due,
which must be settled immediately, is unfavourable, even though
the general balance of trade is favourable. This is explained
partly as a result of the credit which it has granted, and partly
as a result of the huge quantity of capital loaned to foreign
countries, so that a large quantity of returns flow back to it in
commodities, in addition to the actual trade returns. (However,

492

DIVISION OF PROFIT

the crisis has at times first broken out in America, which takes most
of the commercial and capital credit from England.) The crash
in England, initiated and accompanied by a gold drain, settles
England's balance of payments, partly by a bankruptcy of its
importers (about which more below), partly by disposing of a
portion of its commodity-capital at low prices abroad, and partly
by the sale of foreign securities, the purchase of English securities,
etc. Now comes the turn of some other country. The balance of
payments was momentarily in its favour; but now the time lapse
normally existing between the balance of payments and balance of
trade has been eliminated or at least reduced by the crisis: all
payments are now suddenly supposed to be made at once. The
same thing is now repeated here. England now has a return flow
of gold, the other country a gold drain. What appears in one
country as excessive imports, appears in the other as excessive
exports, and vice versa. But over-imports and over-exports have
taken place in all countries (we are not speaking here about crop
failures, etc., but about a general crisis); that is over-production
promoted by credit and the general inflation of prices that goes
with it.

In 1857, the crisis broke out in the United States. A flow of
gold from England to America followed. But as soon as the bubble
in America burst, the crisis broke out in England and the gold
flowed from America to England. The same took place between
England and the continent. The balance of payments is in times
of general crisis unfavourable to every nation, at least to every
commercially developed nation, but always to each country in
succession, as in volley firing, i.e., as soon as each one’s turn
comes for making payments; and once the crisis has broken out,
e.g., in England, it compresses the series of these terms into a
very short period. It then becomes evident that all these nations
have simultaneously over-exported (thus over-produced) and over¬
imported (thus over-traded), that prices were inflated in all of
them, and credit stretched too far. And the same break-down
takes place in all of them. The phenomenon of a gold drain then
takes place successively in all of them and proves precisely by
its general character 1) that gold drain is just a phenomenon of a
crisis, not its cause; 2) that the sequence in which it hits the various
countries indicates only when their judgement-day has come, i.e.,
when the crisis started and its latent elements come to the fore
there.

It is characteristic of the English economic writers — and the
economic literature worth mentioning since 1830 resolves itself

MONEY-CAPITAL AND REAL CAPITAL. I

493

mainly into a literature on currency, credit, and crises — that
they look upon the export of precious metals in times of crisis,
in spite of the turn in the rates of exchange, only from the stand¬
point of England, as a purely national phenomenon, and resolutely
close their eyes to the fact that all other European banks raise their
rate of interest when their bank raises its own in times of crisis,
and that, when the cry of distress over the drain of gold is raised
in their country today, it is taken up in America tomorrow and
in Germany and France the day after.

In 1847, “the engagements running upon this country had to
be met” [mostly for corn]. “Unfortunately, they were met to a
great extent by failures ” [wealthy England secured relief by bank¬
ruptcies in its obligations toward the continent and America],
“but to the extent to which they were not met by failures, they
were met by the exportation of bullion.” (Report of Committee
on Bank Acts, 1857.) In other words, in so far as a crisis in Eng¬
land is intensified by bank legislation, this legislation is a means
of cheating the corn-exporting countries in periods of famine,
first on their com and then on the money for the corn. A prohibi¬
tion on the export of corn during such periods for countries which
are themselves labouring more or less under scarcities, is, there¬
fore, a very rational measure to thwart this plan of the Bank
of England to “meet obligations” for corn imports “by bankrupt¬
cies. ” It is after all much better that the com producers and
speculators lose a portion of their profit for the good of their
own country than their capital for the good of England.

It follows from the above that commodity-capital, during crises
and during periods of business depression in general, loses to a
large extent its capacity to represent potential money-capital.
The same is true of fictitious capital, interest-bearing paper, in
so far as it circulates on the stock exchange as money-capital.
Its price falls with rising interest. It falls, furthermore, as a result
of the general shortage of credit, which compels its owners to
dump it in large quantities on the market in order to secure money.
It falls, finally, in the case of stocks, partly as a result of the
decrease in revenues for which it constitutes drafts and partly
as a result of the spurious character of the enterprises which it
often enough represents. This fictitious money-capital is enor¬
mously reduced in times of crisis, and with it the ability of its
owners to borrow money on it on the market. However, the re¬
duction of the money equivalents of these securities on the stock
exchange list has nothing to do with the actual capital which they
represent, but very much indeed with the solvency of their owners.

CHAPTER XXXI

MONEY-CAPITAL AND REAL CAPITAL. II
(CONTINUED)

We are still not finished with this question: to what extent does
the accumulation of capital in the form of loanable money-
capital coincide with actual accumulation, i.e., the expansion of
the reproduction process.

The transformation of money into loanable money-capital is a
much simpler matter than the transformation of money into pro¬
ductive capital. But two things should be distinguished here:

1) the mere transformation of money into loan capital;

2) the transformation of capital or revenue into money, which
is transformed into loan capital.

It is only the latter point which can involve a positive accumu¬
lation of loan capital connected with an actual accumulation of
industrial capital.

1. TRANSFORMATION OF MONEY INTO LOAN CAPITAL

We have already seen that a large build-up or surplus of loan
capital can occur, which is connected with productive accumula¬
tion only to the extent that it is inversely proportional to it. This
is the case in two phases of the industrial cycle, namely, first,
when industrial capital in both its forms of productive and com¬
modity-capital is contracted, i.e., at the beginning of the cycle
after the crisis; and, secondly, when the improvement begins,
but when commercial credit still does not use bank credit to a
great extent. In the first case, money-capital, which was formerly
employed in production and commerce, appears as idle loan
capital; in the second case, it appears used to an increasing extent.

MONEY-CAPITAL AND REAL CAPITAL. II

495

but at a very low rate of interest, because the industrial and
commercial capitalists now prescribe terms to the money-capital¬
ist. The surplus of loan capital expresses, in the first case, a stag¬
nation of industrial capital, and in the second, a relative inde¬
pendence of commercial credit from banking credit — based on
the fluidity of the returns, short-term credit, and a preponderance
of operations with one’s own capital. The speculators, who count
on the credit capital of other people, have not yet appeared on
the field; the people who work with their own capital are still
far removed from approximately pure credit operations. In the
former phase, the surplus of loan capital is directly opposite to
expressing actual accumulation. In the second phase, it coin¬
cides with a renewed expansion of the reproduction process — it
accompanies it, but is not its cause. The surplus of loan capital
is already decreasing, i.e., it is still only relative compared to
the demand. In both cases, the expansion of the actual process
of accumulation is promoted by the fact that the low interest —
which coincides in the first case with low prices and in the second,
with slowly rising prices — increases that portion of the profit
which is transformed into profit of enterprise. This takes place
to an even greater extent when interest rises to its average level
during the height of the period of prosperity, when it has indeed
grown, but not relative to profit.

We have seen, on the other hand, that an accumulation of loan
capital can take place without any actual accumulation, i.e., by
mere technical means such as an expansion and concentration of
the banking system; and a saving in the circulation reserve, or in
the reserve fund of private means of payment, which are then al¬
ways transformed into loan capital for a short time. Although this
loan capital, which, for this reason, is also called floating capital,
always retains the form of loan capital only for short periods of
time (and should indeed also be used for discounting only for
short periods of time), there is a continual ebb and flow of it. If
one draws some away, another adds to it. The mass of loanable
money-capital thus grows quite independently of the actual
accumulation (we are not speaking here at all about loans for a
number of years but only of short-term ones on bills of exchange
and deposits).

Bank Committee, 1857. Question 501. “What do you mean by
‘floating capital’?” — [Answer of Mr. Weguelin, Governor of the
Bank of England: ] “It is capital applicable to loans of money
for short periods.... (502) The Bank of England notes ... the
country banks circulation, and the amount of coin which is in the

496

DIVISION OF PROFIT

country.” — [Question:) “It does not appear from the returns
before the Committee, if by floating capital you mean the active
circulation” [of the notes of the Bank of England], “that there
is any very great variation in the active circulation?” [But
there is a very great difference whether this active circulation
is advanced by the money-lender or by the reproductive capital¬
ist himself. Weguelin's answer:] “I include in floating capital
the reserves of the bankers, in which therer is a considerable fluc¬
tuation. ’’—That is to say, there is considerable fluctuation in
that portion of the deposits which the bankers have not loaned
out again, but which figures as their reserve and for the greater
part also as the reserve of the Bank of England, where they are
deposited. Finally, the same gentleman says: floating capital
may be bullion, that is, bar and coin. (503). — It is truly won¬
derful how in this credit gibberish of the money-market all cate¬
gories of political economy receive a different meaning and a
different form. Floating capital is the expression there for circu¬
lating capital, which is, of course, something quite different, and
money is capital, and bullion is capital, and bank-notes are cir¬
culation, and capital is a commodity, and debts are commodi¬
ties, and fixed capital is money invested in hard-to-sell paper!

‘The joint-stock banks of London ... have increased their
deposits from £8,850,774 in 1847 to £43,100,724 in 1857.... The
evidence given to your Committee leads to the inference that of
this vast amount, a large part has been derived from sources not
heretofore made available for this purpose; and that the practice
of opening accounts and depositing money with bankers has
extended to numerous classes who did not formerly employ their
capital(!) in that way. It is stated by Mr. Rodwell, the Chairman
of the Association of the Private Country Bankers” [distinguished
from joint-stock banks], “and delegated by them to give evidence
to your Committee, that in the neighbourhood of Ipswich this
practice has lately increased four-fold among the farmers and
shopkeepers of that district; that almost every farmer, even those
paying only £50 per annum rent, now keeps deposits with bank¬
ers. The aggregate of these deposits of course finds its way to the
employments of trade, and especially gravitates to London, the
centre of commercial activity, where it is employed first in the
discount of bills, or in other advances to the customers of the
London bankers. That large portion, however, for which the bank¬
ers themselves have no immediate demand passes into the hands
of the bill-brokers, who give to the banker in return commercial
bills already discounted by them for persons in London and in

MONEY-CAPITAL AND REAL CAPITAL. II

497

different parts of the country, as a security for the sum advanced
by the banker.” (Bank Committee, 1858, p. V.)

By making advances to the bill-broker on bills of exchange
which this broker has already discounted once, the banker does, in
fact, rediscount them; but in reality, very many of these bills have
already been rediscounted by the bill-broker, and with the same
money that the banker uses to rediscount the bills of the bill-
broker, the latter rediscounts new bills. What this leads to is
shown by the following: “Extensive fictitious credits have been
created by means of accommodation bills, and open credits, great
facilities for which have been afforded by the practice of joint-
stock country banks discounting such bills, and rediscounting
them with the bill-brokers in the London market, upon the credit
of the bank alone, without .reference to the quality of the bills
otherwise” ( loc . cit., p. XXI).

Concerning this rediscounting and the assistance which this
purely technical increase of loanable money-capital gives to credit
swindles, the following extract from the Economist is of interest:
“For some years past capital” (namely, loanable money-capital]
“has accumulated in some districts of the country more rapidly
than it could be used, while, in others, the means of employing
capital have increased more rapidly than the capital itself. While
the bankers in the purely agricultural districts throughout the
kingdom found no sufficient means of profitably and safely employ¬
ing their deposits in their own districts, those in the large mer¬
cantile towns, and in the manufacturing and mining districts,
have found a larger demand for capital than their own means
could supply. The effect of this relative state of different districts
has led, of late years, to the establishment and rapid extension of a
new class of houses in the distribution of capital, who, though
usually called bill-brokers, are in reality bankers upon an im¬
mense scale. The business of these houses has been to receive, for
such periods, and at such rates of interest as were agreed upon,
the surplus-capital of bankers in those districts where it could
not be employed, as well as the temporary unemployed moneys
of public companies and extensive mercantile establishments, and
advance them at higher rates of interest to banker in those dis¬
tricts where capital was more in demand, generally by rediscount¬
ing the bills taken from their customers ... and in this way
Lombard Street has become the great centre in which the transfer of
spare capital has been made from one part of the country, where
it could not be profitably employed, to another, where a demand
existed for it, as well as between individuals similarly circum-

498

DIVISION OF PROFIT

stanced. At first these transactions were confined almost exclu¬
sively to borrowing and lending on banking securities. But as the
capital of the country rapidly accumulated, and became more
economised by the establishment of banks, the funds at the dis¬
posal of these ‘discount houses' became so large that they were
induced to make advances first on dock warrants of merchandise
(storage bills on commodities in docks), and next on bills of lading,
representing produce not even arrived in this country, though
sometimes, if not generally, secured by bills drawn by the merchant
upon his broker. This practice rapidly changed the whole character
of English commerce. The facilities thus afforded in Lombard
Street gave extensive powers to the brokers in Mincing Lane,
who on their part ... offered the full advantage of them to the im¬
porting merchant; who so far took advantage of them, that, where¬
as 25 years ago, the fact that a merchant received advances on his
bills of lading, or even his dock warrants, would have been fatal
to his credit, the practice has become so common of late years
that it may be said to be now the general rule, and not the rare
exception, as it was 25 years ago. Nay, so much further has this
system been carried, that large sums have been raised in Lombard
Street on bills drawn against the forthcoming crops of distant colo¬
nies. The consequence of such facilities being thus granted to the
importing merchants led them to extend their transactions abroad,
and to invest their floating capital with which their business
has hitherto been conducted, in the most objectionable of all fixed
securities — foreign plantations — over which they could exercise
little or no control. And thus we see the direct change of credit
through which the capital of the country, collected in our rural
districts, and in small amounts in the shape of deposits in country
banks, and centres in Lombard Street for employment, has been,
first, made available for the extending operations in our mining
and manufacturing districts, by the rediscount of bills to banks in
those localities; next, for granting greater facilities for the impor¬
tation of foreign produce by advances upon dock warrants and
bills of lading, and thus liberating the ‘legitimate’ mercantile
capital of houses engaged in foreign and colonial trade, and
inducing to its most objectionable advances on foreign planta¬
tions.” ( Economist , November 20, 1847, p. 1334.) This is how
credits are “nicely” devoured. The rural depositor fancies that he
deposits only with his banker, and fancies furthermore that
when his banker lends to others, it is done to private persons
whom he knows. He has not the slightest suspicion that this bank¬
er places his deposit at the disposal of some London bill-broker.

MONEY-CAPITAL AND REAL CAPITAL. II

499

over whose operations neither of them have the slightest control.

We have already seen how large public enterprises, such as
railways, may momentarily increase loan capital, owing to the
circumstance that the deposited amounts always remain at the
disposal of the bankers for a certain length of time until they
are really used. _

Incidentally, the mass of loan capital is quite different from the
quantity of circulation. By the quantity of circulation we mean
here the sum of all the bank-notes and coin, including bars of
precious metals, existing and circulating in a country. A portion of
this quantity constitutes the reserve of the barks which contin¬
uously vary in magnitude.

“On November 12, 1857” [the date of the suspension of the Bank
Act of 1844], “the entire reserve of the Bank of England was only
£580,751 (including London and all its branches); their deposits at
the same time amounting to £22,500,000; of which near six and
a half million belonged to London bankers. ” (Bank Acts, 1858,
p. LVII.)

The variations in the interest rate (aside from those occurring
over longer periods or the variation in the interest rate among
various countries; the former are dependent upon variations in
the general rate of profit, the latter on differences in the rates of
profit and in the development of credit) depend upon the supply
of loan capital (all other circumstances, state of confidence, etc ,
being equal), that is, of capital loaned in the form of money, coin
and notes; in contradistinction to industrial capital, which, as
such — in commodity-form — is loaned by means of commercial
credit among the agents of reproduction themselves.

However, the mass of this loanable money-capital is different
from, and independent of, the mass of circulating money.

For example, if £20 werq loaned five times per day, a money-
capital of £100 would be loaned, and this would imply at the same
time that this £20 would have served, moreover, at least four times
as a means of purchase or payment; for, if no purchase and pay¬
ment intervened — so that it would not have represented at least
four times the converted form of capital (commodities, including
labour-power) — it would not constitute a capital of £100, but only
five claims of £20 each.

In countries with a developed credit, we can assume that all
money-capital available for lending exists in the form of deposits
with banks and money-lenders. This is at least true for business as
a whole. Moreover, in times of flourishing business, before the real

500

DIVISION OF PROFIT

speculation gets underway — when credit is easy and confidence
is growing — most of the functions of circulation are settled by a
simple transfer of credit, without the help of coin or paper money.

The mere possibility of large sums of deposits existing when a
relatively small quantum of a medium of circulation is available,
depends solely on:

1) the number of purchases hnd payments which the same coin
performs;

2) the number of return excursions, whereby it goes back to the
banks as deposits, so that its repeated function as a means of pur¬
chase and payment is promoted through its renewed transfor¬
mation into deposits. For example, a small dealer deposits weekly
with his banker £100 in money; the banker pays out a portion of

he deposit of a manufacturer with this; the latter pays it to his
workers; and the workers use it to pay the small dealer, who depos¬
its it in the bank again. The £100 deposited by this small dealer
have served, therefore, first, to pay the manufacturer a deposit of
his; secondly, to pay the workers; thirdly, to pay the dealer him¬
self; fourthly, to deposit another portion of the money-capital of
the same small dealer; thus at the end of twenty weeks, if he
himself did not have to draw against this money, he would have
deposited £2,000 in the bank by means of the same £100.

To what extent this money-capital is idle, is shown only by the
ebb and flow in the reserve fund of the banks. Therefore, Mr. We-
guelin, Governor of the Bank of England in 1857, concludes that
the gold of the Bank of England is the “only” reserve capital:
“1258. Practically, I think, the rate of discount is governed by the
amount of unemployed capital which there is in the country. The
amount of unemployed capital is represented by the reserve of the
Bank of England, which is practically a reserve of bullion. When,
therefore, the bullion is drawn upon, it diminishes the amount of
unemployed capital in the country, and consequently raises the
value of that which remains.” — [Newmarch] “1364. The reserve of
bullion in the Bank of England is, in truth, the central reserve, or
hoard of treasure, upon which the whole trade of the country is car¬
ried on.... And it is upon that hoard or reservoir that the action of
the foreign exchanges always falls. ” (Report on Bank Acts, 1857
[pp. 108, 119].)

The statistics of exports and imports furnish a measure of the
accumulation of real, i.e., productive and commodity-capital.
These always show that, during the ten-year cyclical periods of

MONEY-CAPITAL AND REAL CAPITAL. II

501

development of British industry (1815 to 1870), the maximum of
the last prosperity before the crisis always reappears as the mini¬
mum of the following prosperity, whereupon it rises to a new and
far higher peak.

The actual or declared value of the exported products from Great
Britain and Ireland in the prosperity year of 1824 was £40,396,300.
With the crisis of 1825, the amount of exports then falls below
this sum and fluctuates between 35 and 39 million annually. With
the return of prosperity in 1834, it rises above the former maximum
to £41,649,191, and reaches in 1836 the new maximum of
£53,368,571. Beginning with 1837, it falls again to 42 million, so
that the new minimum is already higher than the old maximum,
and then fluctuates between 50 and 53 million. The return of
prosperity lifts the amount of exports in 1844 to £58,500,000,
whereby the peak of 1836 is again already far exceeded. In 1845,
it reaches £60,111,082; it then falls to something over 57 million
in 1846, reaches in 1847 almost 59 million, in 1848 almost 53 mil¬
lion, rises in 1849 to 63,500,000, in 1853 to nearly 99 million, in
1854 to 97 million, in 1855 to 94,500,000, in 1856 almost 116 mil¬
lion and reaches a peak of 122 million in 1857. It falls in 1858 to
116 million, rises already in 1859 to 130 million, in 1860 to nearly
136 million, in 1861 only 125 million (the new low is here again
higher than the former peak), in 1863 to 146,500,000.

Of course, the same thing could be demonstrated in the case of
imports, which shows the expansion of the market; here it is only
a matter of the scale of production. [Of course, this holds true of
England only for the lime of its actual industrial monopoly; but it
applies in general to the whole complex of countries with modern
large-scale industries, as long as the world-market is still expand¬
ing. — F. E.\

2. TRANSFORMATION OF CAPITAL OR REVENUE
INTO MONEY THAT IS TRANSFORMED INTO LOAN CAPITAL

We will consider here the accumulation of money-capital, in so
far as it is not an expression either of a stoppage in the flow of com¬
mercial credit or of an economy — whether it be an economy in
the actual circulating medium or in the reserve capital of the agents
engaged in reproduction.

Aside from these two cases, an accumulation of money-capital
can arise through an unusual inflow of gold, as in 1852 and 1853
as a result of the new Australian and Californian gold mines. This
gold was deposited in the Bank of England. The depositors received

1 7 — 2494

502

DIVISION OF PROFIT

notes for it, which they did not directly redeposit with bankers.
By this means the circulating medium was unusually increased.
(Testimony of Weguelin, Bank Committee, 1857, No. 1329.)
The Bank strove to utilise these deposits by lowering its discount
to 2%. The mass of gold accumulated in the Bank rose during six
months of 1853 to 22-23 million.

The accumulation of all money-lending capitalists naturally
always takes place directly in money-form, whereas we have seen
that the actual accumulation of industrial capitalists is accom¬
plished, as a rule, by an increase in the elements of reproductive
capital itself. Hence, the development of the credit system and the
enormous concentration of the money-lending business in the hands
of large banks must, by themselves alone, accelerate the accumula¬
tion of loanable capital, as a form distinct from actual accumula¬
tion. This rapid development of loan capital is, therefore, a result
of actual accumulation, for it is a consequence of the development
of the reproduction process, and the profit which forms the source
of accumulation for these money-capitalists is only a deduction
from the surplus-value which the reproductive ones filch (and it is
at the same time the appropriation of a portion of the interest
from the savings of others). Loan capital accumulates at the expense
of both the industrial and commercial capitalists. We have
seen that in the unfavourable phases of the industrial cycle the rate
of interest may rise so high that it temporarily consumes the whole
profit of some lines of business which are particularly handicapped.
At the same time, prices of government and other securities fall.
It is at such times that the money-capitalists buy this depreciat¬
ed paper in huge quantities which in the later phases soon regains
its former level and rises above it. It is then sold again and a
portion of the money-capital of the public is thus appropriated.
That portion which is not sold yields a higher interest because it
was bought below par. But the money-capitalists convert all
profits made, and reconverted by them into capital, first into
loanable money-capital. The accumulation of the latter — as di¬
stinct from the actual accumulation, although its offshoot — thus
takes place, even when we consider only the money-capitalists,
bankers, etc., by themselves, as an accumulation of this particu¬
lar class of capitalists. And it must grow with every expansion of
the credit system which accompanies the actual expansion of the
reproduction process.

If the interest rate is low, this depreciation of the money-
capital falls principally upon the depositors, not upon the banks.
Before the development of stock banks, three-fourths of all the

MONEY-CAPITAL AND REAL CAPITAL. II

503

deposits in England lay in the banks without yielding interest.
While interest is now paid on them, it amounts to at least 1% less
than the current rate of interest.

As for the money accumulation of the other classes of capital¬
ists, we disregard that portion of it which is invested in interest-
bearing paper and accumulates in this form. We consider only
that portion which is thrown upon the market as loanable money-
capital.

In the first place, we have here that portion of the profit which is
not spent as revenue, but is set aside for accumulation — for
which, however, the industrial capitalists have no use in their own
business at the moment. This profit exists directly in commodity-
capital, a part of whose value it constitutes, and along with which
it is realised in money. Now, if it is not reconverted into the produc¬
tion elements of commodity-capital (we leave out of consideration
for the present the merchant, whom we shall discuss separate¬
ly), it must remain for a length of time in the form of money.
This amount increases with the amount of capital itself, even when
the rate of profit declines. That portion which is to be spent as
revenue is gradually consumed, but, in the meantime, as deposits,
it constitutes loan capital with the banker. Thus, even the growth
of that portion of profit which is spent as revenue expresses it¬
self as a gradual and continually repeated accumulation of loan
capital. The same is true of the other portion, which is intended
for accumulation. Therefore, with the development of the credit
system and its organisation, even an increase in revenue, i.e.,
the consumption of the industrial and commercial capitalists,
expresses itself as an accumulation of loan capital. And this holds
true for all revenues so far as they are consumed gradually, in
other words, for ground-rent, wages in their higher form, incomes
of unproductive classes, etc. All of them assume for a certain time
the form of money revenue and are, therefore, convertible into
deposits and thus into loan capital. All revenue — whether it be
intended for consumption or accumulation — as long as it exists in
some form of money, is a part of the value of commodity-capital
transformed into money, and is, for this reason, an expression and
result of actual accumulation, but is not productive capital itself.
When a spinner has exchanged his yam for cotton — that portion
which constitutes revenue however for money, the real existence
of his industrial capital is the yam, which has passed into the hands
of the weaver or, perhaps, of some private consumer, and the yam
is, in fact, the existence — whether it is for reproduction or con¬
sumption — of the capital-value as well as the surplus-value

17*

504

DIVISION OP PROFIT

contained in it. The magnitude of the surplus-value transformed
into money depends upon the magnitude of the surplus-value con¬
tained in the yarn. But as soon as it has been transformed into
money, this money is only the value existence of this surplus-value.
And as such it becomes a moment of loan capital. For this purpose,
nothing more is required than that it be transformed into a depos¬
it, if it has not already been loaned out by its owner. But in order
to be retransformed into productive capital, it must, on the other
hand, already have reached a certain minimum limit.

CHAPTER XXXII

MONEY-CAPITAL AND REAL CAPITAL. Ill

(CONCLUDED)

The mass of money to be transformed back into capital in this
manner is a result of the enormous reproduction process, but con¬
sidered by itself, as loanable money-capital, it is not itself a mass
of reproductive capital.

The most important point of our presentation so far is that the
expansion of the part of the revenue intended for consumption
(leaving out of consideration the worker, because his revenue is
equal to the variable capital) shows itself at first as an accumula¬
tion of money-capital. A factor, therefore, enters into the accumu¬
lation of money-capital that is essentially different from the actual
accumulation of industrial capital; for the portion of the annual
product which is intended for consumption does not by any means
become capital. A portion of it replaces capital, i.e., the constant
capital of the producers of means of consumption, but to the extent
that it is actually transformed into capital, it exists in the natu¬
ral form of the revenue of the producers of this constant capital.
The same money, which represents the revenue and serves merely
for the promotion of consumption, is regularly transformed into
loanable money-capital for a period of time. In so far as this
money represents wages, it is at the same time the money-form of the
variable capital; and in so far as it replaces the constant capital of
the producers of means of consumption, it is the money-form tem¬
porarily assumed by their constant capital and serves to pur¬
chase the components of their constant capital to be replaced in
kind. Neither in the one nor in the other form does it express in
itself accumulation, although its quantity increases with the
growth of the reproduction process. But it performs temporarily
the function of loanable money, i.e., of money-capital. In this
respect, therefore, the accumulation of money-capital must al¬
ways reflect a greater accumulation of capital than actually exists,
owing to the fact that the extension of individual consumption,

506

DIVISION OF PROFIT

because it is promoted by means of money, appears as an accumu¬
lation of money-capital, since it furnishes the money-form for
actual accumulation, i.e., for money which permits new invest¬
ments of capital.

Thus, the accumulation of loanable money-capital expresses in
part only the fact that all money into which industrial capital is
transformed in the course of its circuit assumes the form not of
money advanced by the reproductive capitalists, but of money
borrowed by them; so that indeed the advance of money that must
take place in the reproduction process appears as an advance of
borrowed money. In fact, on the basis of commercial credit, one
person lends to another the money required for the reproduction
process. But this now assumes the following form: the banker, who
receives the money as a loan from one group of the reproductive
capitalists, lends it to another group of reproductive capitalists,
so that the banker appears in the role of a supreme benefactor; and
at the same time, the control over this capital falls completely
into the hands of the banker in his capacity as middleman.

A few special forms of accumulation of money-capital still re¬
main to be mentioned. For example, capital is released by a fall
in the price of the elements of production, raw materials, etc. If
the industrial capitalist cannot expand his reproduction process
immediately, a portion of his money-capital is expelled from the
circuit as superfluous and is transformed into loanable money-cap¬
ital. Secondly, however, capital in the form of money is released
especially by the merchant, whenever interruptions in his busi¬
ness take place. If the merchant has completed a series of transac¬
tions and cannot begin a new series because of such interruptions
until later, the money realised represents for him only a hoard,
surplus-capital. But at the same time, it represents a direct accu¬
mulation of loanable money-capital. In the first case, the accumu¬
lation of money-capital expresses a repetition of the reproduction
process under more favourable conditions, an actual release of a
portion of formerly tied-up capital; in other words, an opportunity
for expanding the reproduction process with the same amount of
money. But in the other case, it expresses merely an interruption
in the flow of transactions. However, in both cases it is converted
into loanable money-capital, represents its accumulation, influ¬
ences equally the money-market and the rate of interest — although
it expresses a promotion of the actual accumulation process in one
case and its obstruction in the other. Finally, accumulation of
money-capital is influenced by the number of people who have
feathered their nests and have withdrawn from reproduction.

MONEY-CAPITAL AND REAL CAPITAL. Ill

507

Their number increases as more profits are made in the course of
the industrial cycle. In this case, the accumulation of loanable
pioney-capital expresses, on the one hand, an actual accumulation
(in accordance with its relative extent), and, on the other hand,
only the extent of the transformation of the industrial capitalists
into mere money-capitalists.

As for the other portion of profit, which is not intended to be
consumed as revenue, it is converted into money-capital only
when it is not immediately able to find a place for investment in
the expansion of business in the productive sphere in which it
has been made. This may be due to two causes. Either because
this sphere of production is saturated with capital, or because accu¬
mulation must first reach a certain volume before it can serve as
capital, depending on the investment magnitudes of new capital
required in this particular sphere. Hence it is converted for a
while into loanable money-capital and serves in the expansion of
production in other spheres. Assuming all other conditions being
equal, the quantity of profits intended for transformation back
into capital will depend on the quantity of profits made and thus
on the extension of the reproduction process itself. But if this new
accumulation meets with difficulties in its employment, through a
lack of spheres for investment, i.e., due to a surplus in the branches
of production and an over-supply of loan capital, this plethora
of loanable money-capital merely shows the limitations of capi¬
talist production. The subsequent credit swindle proves that no
real obstacle stands in the way of the employment of this surplus-
capital. However, an obstacle is indeed immanent in its laws of
expansion, i.e., in the limits in which capital can realise itself as
capital. A plethora of money-capital as such does not necessarily
indicate over-production, not even a shortage of spheres of invest¬
ment for capital.

The accumulation of loan capital consists simply in the fact that
money is precipitated as loanable money. This process is very
different from an actual transformation into capital; it is merely
the accumulation of money in a form in which it can be trans¬
formed into capital. But this accumulation can reflect, as we have
shown, events which are greatly different from actual accumula¬
tion. As long as actual accumulation is continually expanding,
this extended accumulation of money-capital may be partly its
result, partly the result of circumstances which accompany it
but are quite different from it, and, finally, even partly the result
of impediments to actual accumulation. If for no other reason than
that accumulation of loan capital is inflated by such circum-

506

DIVISION OF PROFIT

stances, which are independent of actual accumulation but neverthe¬
less accompany it, there must be a continuous plethora of money-
capital in definite phases of the cycle and this plethora must
develop with the expansion of credit. And simultaneously with it,
the necessity of driving the production process beyond its capital¬
istic limits must also develop: over-trade, over-production, and
excessive credit. At the same time, this must always take place in
forms that call forth a reaction.

As far as accumulation of money-capital from ground-rent,
wages, etc., is concerned, it is not necessary to discuss that matter
here. Only one aspect should be emphasised and that is that the
business of actual saving and abstinence (by hoarders), to the
extent that it furnishes elements of accumulation, is left by the divi¬
sion of labour, which comes with the progress of capitalist produc¬
tion, to those who receive the minimum of such elements, and who
frequently enough lose even their savings, as do the labourers when
banks fail. On the one hand, the capital of the industrial capital¬
ist is not “saved” by himself, but he has command of the savings
of others in proportion to the magnitude of his capital; on the
other hand, the money-capitalist makes of the savings of others
his own capital, and of the credit, which the reproductive capital¬
ists give to one another and which the public gives to them, a
private source for enriching himself. The last illusion of the capi¬
talist system, that capital is the fruit of one’s own labour and
savings, is thereby destroyed. Not only does profit consist in the
appropriation of other people’s labour, but the capital, with which
this labour of others is set in motion and exploited, consists of
other people’s property, which the money-capitalist places at
the disposal of the industrial capitalists, and for which he in turn
exploits the latter.

A few remarks remain to be made about credit capital.

How often the same piece of money can figure as loan capital,
wholly depends, as we have already previously shown, on:

1) how often it realises commodity-values in sale or payment,
thus transfers capital, and furthermore how often it realises
revenue. How often it gets into other hands as realised value,
either of capital or of revenue, obviously depends, therefore, on the
extent and magnitude of the actual transactions;

2) this depends on the economy of payments and the develop¬
ment and organisation of the credit system;

3) finally, the concatenation and velocity of action of credits, so
that when a deposit is made at one point it immediately starts off
as a loan at another.

MONEY-CAPITAL AND REAL CAPITAL. Ill

500

Even assuming that the form in which loan capital exists is
exclusively that of real money, gold or silver — the commodity
whose substance serves as a measure of value — a large portion of
this money-capital is always necessarily purely fictitious, that is,
a title to value — just as paper money. In so far as money functions
in the circuit of capital, it constitutes indeed, for a moment,
money-capital; but it does not transform itself into loanable money-
capital; it is rather exchanged for the elements of productive capi¬
tal, or paid out as a medium of circulation in the realisation of
revenue, and cannot, therefore, transform itself into loan capital
for its owner. But in so far as it is transformed into loan capital,
and the same money repeatedly represents loan capital, it is evi¬
dent that it exists only at one point in the form of metallic money;
at all other points it exists only in the form of claims to capital.
With the assumption made, the accumulation of these claims
arises from actual accumulation, that is, from the transformation
of the value of commodity-capital, etc., into money; but never¬
theless the accumulation of these claims or titles as such differs
from the actual accumulation from which it arises, as well as from
the future accumulation (the new production process), which is
promoted by the lending of this money.

Prima facie loan capital always exists in the form of money,*
later as a claim to money, since the money in which it originally
exists is now in the hands of the borrower in actual money-form.
For the lender it has been transformed into a claim to money,

• B. A. 1857. Testimony of Twells, banker: “4516. As a banker, do you
deal in capital or in money? — We deal in money.” — “4517. How are the
deposits paid into your bank? — In money.” — “4518. How are they paid
out?— In money. ”—“4519. Then can they be called anything else but money?
-No.”

Overstone (see Chapter XXVI) confuses continually “capital” and
“money." “Value of money” also means interest to him, but in so far as it is
determined by the mass of money, “value of capital” is supposed to be interest,
in so far as it is determined by the demand for productive capital and the
profit made by it. He says: “4140. The use of the word ‘capital’ is very
dangerous. ” — “4148. The export of bullion from this country is a diminu¬
tion of the quantity of money in this country, and a diminution of the quan¬
tity of money in this country must of course create a pressure upon the money-
market generally” [but not in the capital-market, according to this].—
“4112. As the money goes out of the country, the quantity in the country is
diminished. That diminution of the quantity remaining in the country
produces an increased value of that money” [this originally means in his
theory an increase in the value of money as such through a contraction of
circulation, as compared to the values of commodities; in other words, an
increase in the value of money is the same as a fall in the value of commodi¬
ties. But since in the meantime even he has been convinced beyond perad-

510

DIVISION OF PROFIT

into a title of ownership. The same mass of actual money can, there¬
fore, represent very different masses of money-capital. Mere money,
whether it represents realised capital or realised revenue, becomes
loan capital through the simple act of lending, through its transfor¬
mation into a deposit, if we consider the general form in a devel¬
oped credit system. The deposit is money-capital for the depositor.
But in the hands of the banker it may be only potential money-
capital, which lies idle in his safe instead of in its owner’s.10

With the growth of material wealth the class of money-capital¬
ists grows; on the one hand, the number and the wealth of retiring
capitalists, rentiers, increases; and on the other hand, the devel¬
opment of the credit system is promoted, thereby increasing the
number of bankers, money-lenders, financiers, etc. With the devel¬
opment of the available money-capital, the quantity of interest-

venture that the mass of circulating money does not determine prices, it is
now the diminution in money as a medium of circulation which is supposed to
raise its value as interest-bearing capital, and thus the rate of interest J. “And
that increased value of what remains stops the exit of money, and is kept
up until it has brought back that quantity of money which is necessary to
restore the equilibrium. More of Overstone’s contradictions later on.

14 At this point the confusion starts: both of these things are supposed to
be “money”, namely, the deposit as a claim to payment from the banker,
and the deposited money in the hands of the banker. Banker Twells, before
the Banking Committee of 1857, offers the following example: “If I begin
business with 610,000, I buy with £5,000 commodities and put them into
warehouse. 1 deposit the other £5,000 with a banker, to draw upon it and
use it as I require it. I consider it still £10,000 capital to me, though £5,000
is in the shape of deposits or money” (4528).— This now gives rise to the
following peculiar debate. — “4531. You have parted with your £5,000 of
notes to somebody else? — Yes.” — “4532. Then he has £5,060 of deposits?—
Yes.” — “4533. And you have £5,000 of deposits left? — Exactly." — “4534.
He has £5,000 in money, and you have £5,000 in money?— Yes. ”— “4535.
But it is nothing but money at last? — No.” This confusion is due partly to
the circumstance that A, who has deposited £5,000, can draw on it and dis¬
pose of it as though he still had it. To that extent it serves him as potential
money. However, in all cases in which he draws on it he destroys his deposit
pro tanto. If he draws out real money, and his own money has already been
lent to someone else, he is not paid with his own money, but with that of
some other depositor. If he pays a debt to B with a cheque on his banker,
and B deposits this cheque with his banker, and the banker of A also has a
cheque on the banker of B, so that the two bankers merely exchange cheques,
the money deposited by A has performed the function of money twice;
first, in the hands of the one who has received the money deposited by A;
secondly, in the hands of A himself. In the second function, it is a balancing
of claims (the claim of A on his banker, and the claim of the latter on the
banker of B) without using money. Here the deposit acts twice as money,
namely, as real money and then as a claim on money. Mere claims to money
can take the place of money only by a balancing of claims.

MONEY-CAPITAL AND REAL CAPITAL. Ill

511

bearing paper, government securities, stocks, etc., also grows
as we have previously shown. However, at the same time the
demand for available money-capital also grows, the jobbers, who
speculate with this paper, playing a prominent role on the money-
market. If all the purchases and sales of this paper were only an
expression of actual investments of capital, it would be correct
to say that they could have no influence on the demand for loan
capital, since when A sells his paper, he draws exactly as much
money as B puts into the paper. But even if the paper itself exists,
though not the capital (at least not as money-capital) originally
represented by it, it always creates pro tanto a new demand for
such money-capital. But at any rate it is then money-capital, which
was previously at the disposal of B but is now at the disposal of A.

B. A. 1857. No. 4886. “Do you consider that it is a correct de¬
scription of the causes which determined the rate of discount, to
say that it is fixed by the quantity of capital on the market, which
is applicable to the discount of mercantile bills, as distinguished
from other classes of securities?” — [Chapman:] “No, I think that
the question of interest is affected by all convertible securities of a
current character; it would be wrong to limit it simply to the dis¬
count of bills, because it would be absurd to say that when there
is a great demand for money upon [the deposit of] consols, or even
upon Exchequer bills, as has ruled very much of late, at a rate
much higher than the commercial rate, our commercial world is
not affected by it; it is very materially affected by it.” — “4890.
When sound and current securities, such as bankers acknowledge
to be so, are on the market, and people want to borrow money
upon them, it certainly has its effect upon commercial bills; for
instance, I can hardly expect a man to let me have money at 5%
upon commercial bills, if he can lend his money at the same mo¬
ment at 6% upon consols, or whatever it may be; it affects us in
the same manner; a man can hardly expect me to discount bills at
51 12%, if I can lend my money at 6%.” — “4892. We do not talk
of investors who buy their £2,000, or £5,000, or £10,000, as affect¬
ing the money-market materially. If you ask me as to the rate of
interest upon [a deposit of] consols, I allude to people, who deal in
hundreds of thousands of pounds, who are what are called jobbers,
who take large portions of loans, or make purchases on the market,
and have to hold that stock till the public take it off their hands at
a profit; these men, therefore, want money.”

With the development of the credit system; great concentrated
money-markets are created, such as London, which are at the
same time the main seats of trade in this paper. The bankers plpce

512

DIVISION OP PROFIT

huge quantities of the public’s money-capital at the disposal of
this unsavoury crowd of dealers, and thus this brood of gamblers
multiplies. “Money upon the Stock Exchange is, generally speak¬
ing, cheaper than it is elsewhere, ” says James Morris the incum¬
bent of the Governor’s chair of the Bank of England in 1848 before
the Secret Committee of Lords (C. D. 1848, printed 1857, No. 219).

In the discussion on interest-bearing capital, we have already
shown that the average interest over a long period of years, other
conditions remaining equal, is determined by the average rate of
profit; not profit of enterprise, which is nothing more than profit
minus interest.*

It has also been mentioned, and will be further analysed in an¬
other place, that also for the variations in commercial interest,
that is, interest calculated by the money-lenders for discounts
and loans within the commercial world, a phase is reached, in
the course of the industrial cycle, in which the rate of interest ex¬
ceeds its minimum and reaches its mean level (which it exceeds
later) and that this movement is a result of a rise in profits.

In the meantime, two things are to be noted here.

First: When the rate of interest stays up for a long time (we are
speaking here of the rate of interest in a given country like England,
where the average rate of interest is given over a lengthy period of
time, and also shows itself in the interest paid on long-term loans —
what could be called private interest), it is prima facie proof
that the rate of profit is high during this period, but it does not
prove necessarily that the rate of profit of enterprise is high. This
latter distinction is more or less removed for capitalists, who op¬
erate mainly with their own capital; they realise the high rate of
profit, since they pay the interest to themselves. The possibility of
a high rate of interest of long duration is present when the rate of
profit is high; this does not refer, however, to the phase of actual
squeeze. But it is possible that this high rate of profit may leave
only a low rate of profit of enterprise, after the high rate of inter¬
est has been deducted. The rate of profit of enterprise may shrink,
while the high rate of profit continues. This is possible because the
enterprises must be continued, once they have been started. Dur¬
ing this phase, operations are carried on to a large extent with
pure credit capital (capital of other people); and the high rate of
profit may be partly speculative and prospective. A high rate of
interest can be paid with a high rate of profit but decreasing profit
of enterprise. It can be paid (and this is done in part during times

• Present edition: pp. 365-66. — Ed.

MONEY-CAPITAL AND REAL CAPITAL. Ill

513

of speculation), not out of the profit, but out of the borrowed
capital itself, and this can continue for a while.

Secondly: The statement that the demand for money-capital,
and therefore the rate of interest, grows, because the rate of profit is
high, is not identical with the statement that the demand for
industrial capital grows and therefore the rate of interest is high.

In times of crisis, the demand for loan capital, and therefore
the rate of interest, reaches its maximum; the rate of profit, and
with it the demand for industrial capital, has to all intents and pur¬
poses disappeared. During such times, everyone borrows only for
the purpose of paying, in order to settle previously contracted
obligations. On the other hand, in times of renewed activity after
a crisis, loan capital is demanded for the purpose of buying and for
the purpose of transforming money-capital into productive or
commercial capital. And then it is demanded either by the indus¬
trial capitalist or the merchant. The industrial capitalist invests
it in means of production and in labour-power.

The rising demand for labour-power can never by itself be a
cause for a rising rate of interest, in so far as the latter is deter¬
mined by the rate of profit. Higher wages are never a cause for higher
profits, although they may be one of the consequences of higher
profits during some particular phases of the industrial cycle.

The demand for labour-power can increase because the exploita¬
tion of labour takes place under especially favourable circum¬
stances, but the rising demand for labour-power, and thus for
variable capital, does not in itself increase the profit; it, on the
contrary, lowers it pro tanto. But the demand for variable capital
can nevertheless increase at the same time, thus also the demand
for money-capital — which can raise the rate of interest. The market-
price of labour-power then rises above its average, more than
the average number of labourers are employed, and the rate of in¬
terest rises at the same time because under such circumstances
the demand for money-capital rises. The rising demand for labour-
power raises the price of this commodity, as every other, increases
its price; but not the profit, which depends mainly upon the relative
cheapness of this commodity in particular. But it raises at the
same time — under the assumed conditions — the rate of interest,
because it increases the demand for money-capital. If the money-
capitalist, instead of lending the money, should transform him¬
self into an industrial capitalist, the fact that he has to pay more
for labour-power would not increase his profit but would rather
decrease it correspondingly. The state of business may be such
that his profit may nevertheless rise, but it would never be so be-

514

DIVISION OF PROFIT

cause he pays more for labour. The latter circumstance, in so far as
it increases the demand for money-capital, is, however, sufficient
to raise the rate of interest. If wages should rise for some reason
during an otherwise unfavourable state of business, the rise in
wages would lower the rate of profit, but raise the rate of interest
to the extent that it increased the demand for money-capital.

Leaving labour aside, the thing called “demand for capital” by
Overstone consists only in a demand for commodities. The demand
for commodities raises their price, either because it rises above
average, or because the supply of commodities falls below aver¬
age. If the industrial capitalist or merchant must now pay, e.g.,
£150 for the same amount of commodities for which he used to pay
£100, he would now have to borrow £150 instead of the former
£100, and if the rate of interest were 5%, he would now have to
pay an interest of £7Vj as compared with £5 formerly. The
amount of interest to be paid by him would rise because he now has
to borrow more capital.

The whole endeavour of Mr. Overstone consists in representing
the interests of loan capital and industrial capital as being identi¬
cal, whereas his Bank Act is precisely calculated to exploit this
very difference of interests to the advantage of money-capital.

It is possible that the demand for commodities, in case their sup¬
ply has fallen below average, does not absorb any more money-
capital than formerly. The same sum, or perhaps a smaller one,
has to be paid for their total value, but a smaller quantity of use-
values is received for the same sum. In this case, the demand for
loanable capital will be unchanged and therefore rate of interest
will not rise, although the demand for commodities would have
risen as compared to their supply and consequently the price of
commodities would have become higher. The rate of interest can¬
not he affected, unless the total demand for loan capital increases,
and this is not the case under the above assumptions.

The supply of an article can also fall below average, as it does
when crop failures in corn, cotton, etc., occur; and the demand for
loan capital can increase because speculation in these commodi¬
ties counts on further rise in prices and the easiest way to make
them rise is to temporarily withdraw a portion of the supply from
the market. But in order to pay for the purchased commodities
without selling them, money is secured by means of the commer¬
cial “bill of exchange operations.” In this case, the demand for
loan capital increases, and the rate of interest can rise as a result
of this attempt to artificially prevent the supply of this commodity
from reaching the market. The higher rate of interest then re-

MONEY-CAPITAL AND REAL CAPITAL. Ill

515

fleets an artificial reduction in the supply of commodity-capital.

On the other hand, the demand for an article can grow
because its supply has increased and the article sells below its
average price.

In this case, the demand for loan capital can remain the same, or
even fall, because more commodities can be had for the same sum
of money. Speculative stock-piling could also occur, either for
the purpose of taking advantage of the most favourable moment
for production purposes, or in expectation of a future rise in prices.
In this case, the demand for loan capital could grow, and the rise
in the rate of interest would then be a reflection of capital invest¬
ment in surplus stock-piling of elements of pioductive capital.
We are only considering here the demand for loan capital as it
is influenced by the demand for, and supply of, commodity-capital.
We have already discussed how the varying state of the reproduc¬
tion process in the phases of the industrial cycle influences the
supply of loan capital. The trivial proposition that the market
rate of interest is determined by the supply and demand of (loan)
capital is shrewdly jumbled up by Overstone with his own
postulate, namely, that loan capital is identical with capital in
general; and in this way he tries to transform the usurer into the
only capitalist and his capital into the only capital.

In times of stringency, the demand for loan capital is a demand
for means of payment and nothing else; it is by no means a demand
for money as a means of purchase. At the same time, the rate of
interest may rise very high, regardless whether real capital, i.e.,
productive and commodity capital, exists in abundance or is
scarce. The demand for means of payment js a mere demand for
convertibility into money, so far as merchants and producers have
good securities to offer; it is a demand for money-capital whenever
there is no collateral, so that an advance of means of payment
gives them not only the form of money but also the equivalent they
lack, whatever its form, with which to make payment. This is
the point where both sides of the controversy on the prevalent
theory of crises are at the same time right and wrong. Those who
say that there is merely a lack of means of payment, either have
only the owners of bona fide securities in mind, or they are fools
who believe that it is the duty and power of banks to transform all
bankrupt swindlers into solvent and respectable capitalists by
means of pieces of paper. Those who say that there is merely a lack
of capital, are either just quibbling about words, since precisely at
such times there is a mass of inconvertible capital as a result of
over-imports and over-production, or they are referring only to

516

DIVISION OF PROFIT

such cavaliers of credit who are now, indeed, placed in the position
where they can no longer obtain other people’s capital for their
operations and now demand that the bank should not only help
them to pay for the lost capital, but also enable them to continue
with their swindles.

It is a basic principle of capitalist production that money, as an
independent form of value, stands in opposition to commodities,
or that exchange-value must assume an independent form in
money; and this is only possible when a definite commodity be¬
comes the material whose value becomes a measure of all other
commodities, so that it thus becomes the general commodity, the
commodity par excellence — as distinguished from all other com¬
modities. This must manifest itself in two respects, particularly
among capitalistically developed nations, which to a large extent
replace money, on the one hand, by credit operations, and on the ot¬
her by credit-money. In times of a squeeze, when credit contracts or
ceases entirely, money suddenly stands as the only means of pay¬
ment and true existence of value in absolute opposition to all
other commodities. Hence the universal depreciation of commodi¬
ties, the difficulty or even impossibility of transforming them into
money, i.e., into their own purely fantastic form. Secondly, how¬
ever, credit-money itself is only money to the extent that it abso¬
lutely takes the place of actual money to the amount of its nominal
value. With a drain on gold its convertibility, i.e., its identity with
actual gold becomes problematic. Hence coercive measures, raising
the rate of interest, etc., for the purpose of safeguarding the condi¬
tions of this convertibility. This can be carried more or less to
extremes by mistaken legislation, based on false theories of money
and enforced upon the nation by the interests of the money-
dealers, the Overstones and their ilk. The basis, however, is given
with the basis of the mode of production itself. A depreciation of
credit-money (not to mention, incidentally, a purely imaginary
loss of its character as money) would -unsettle all existing relations.
Therefore, the value of commodities is sacrificed for the purpose
of safeguarding the fantastic and independent existence of this
value in money. As money-value, it is secure only as long as money
is secure. For a few millions in money, many millions in commodi¬
ties must therefore be sacrificed. This is inevitable under capital¬
ist production and constitutes one of its beauties. In former modes
of production, this does not occur because, on the narrow basis
upon which they stand, neither credit nor credit-money can devel¬
op greatly. As long as the social character of labour appears as the
money-existence of commodities, and thus as a thing external to

MONEY-CAPITAL AND REAL CAPITAL. Ill

517

actual production, money crises— independent of or as an intensi¬
fication of actual crises— are inevitable. On the other hand, it is
clear that as long as the credit of a bank is not shaken, it will
alleviate the panic in such cases by increasing credit-money and
intensify it by contracting the latter. The entire history of modem
industry shows that metal would indeed be required only for the
balancing of international commerce, whenever its equilibrium
is momentarily disturbed, if only domestic production were organ¬
ised. That the domestic market does not need any metal even
now is shown by the suspension of the cash payments of the so-
called national banks, which resort to this expedient in all
extreme cases as the sole relief.

In the case of two individuals, it would be ridiculous to say that
in their transactions with one another both have an unfavourable
balance of payments. If they are reciprocally creditor and debtor
of one another, it is evident that when their claims do not balance,
one must be the creditor and the other the debtor for the balance.
With nations this is by no means the case. And that this is not the
case is acknowledged by all economists when they admit that the
balance of payments can be favourable or unfavourable for a
nation, though its trade balance must ultimately be settled. The
balance of payments differs from the balance of trade in that it is a
balance of trade which must be settled at a definite time. What
the crises now accomplish is to narrow the difference between the
balance of payments and the balance of trade to a short interval;
and the specific conditions which develop in the nation suffering
from a crisis and, therefore, having its payments become due —
these conditions already lead to such a contraction of the time of
settlement. First, shipping away precious metals; then selling
consigned commodities at low prices; exporting commodities to
dispose of them or to obtain money advances on them at home;
increasing the rate of interest, recalling credit, depreciating securi¬
ties, disposing of foreign securities, attracting foreign capital for
investment in these depreciated securities, and finally bankrupt¬
cy, which settles a mass of claims. At the same time, metal is
still often sent to the country where a crisis has broken out, because
the drafts drawn on it are insecure and payment in specie is
most trustworthy. Furthermore, in regard to Asia, all capitalist
nations are usually simultaneously — directly or indirectly — its
debtors. As soon as these various circumstances exert their full
effect upon the other involved nation, it likewise begins to
export gold and silver, in short, its payments become due and the
same phenomena are repeated.

518

DIVISION OF PROFIT

In commercial credit, the interest — as the difference between
credit price and cash price — enters into the price of commodities
only in so far as the bills of exchange have a longer than ordinary
running time. Otherwise it does not. And this is explained by the
fact that everyone takes credit with one hand and gives it with
the other. [This does not agree with my experience. — F. £.] But
in so far as discount in this form enters here, it is not regelated by
this commercial credit, but by the money-market.

If supply and demand of money-capital, which determine the
rate of interest, were identical with supply and demand of actual
capital, as Overstone naintains, the interest would be simulta¬
neously low and high, depending on whether various commodities
or various phases (raw material, semi-finished product, finished
product) of the same commodity were being considered. In 1844,
the rate of interest of the Bank of England fluctuated between
4% (from January to September) and 21/* and 3% (from Novem¬
ber to the end of the year). In 1845, it was 2 l1/,, 2*/4, and 3% from
January to October, and between 3 and 5% during the remaining
months. The average price of fair Orleans cotton was 61/«d. in
1844 and 47/gd. in 1845. On March 3, 1844, the cotton supply in
Liverpool was 627,042 bales, and on March 3, 1845, it was 773,800
bales. To judge by the low price of cotton, the rate of interest
should have been low in 1845, and it was indeed for the greater
part of this time. But to judge by the yarn, the rate of interest
should have been high, for the prices were relatively high and the
profits absolutely high. From cotton at 4d. per pound, yarn could
he spun, in 1845 with a spinning cost of 4d. (good secunda mule
twist No. 40), ora total cost of 8d. to the spinner, which he could
sell in September and October 1845 at 10*/* or lU/jd. per pound.
(See the testimony of Wylie below.)

The entire matter can be resolved as follows:

Supply and demand of loan capital would be identical with
supply and demand of capital generally (although this last state¬
ment is absurd; for the industrial or commercial capitalist a com¬
modity is a form of his capital, yet he never asks for capital as
such, but only for the particular commodity as such, he buys and
pays for it as a commodity, e.g., corn or cotton, regardless of the
role that it has to play in the circuit of his capital), if there were
no money-lenders, and if in their stead the lending capitalists
were in possession of machinery, raw materials, etc., which they
would lend or hire out, as houses are rented out now, to the in¬
dustrial capitalists, who are themselves owners of some of these
objects. Under such circumstances, the supply of loan capital

HONEY-CAPITAL AND REAL CAPITAL. Ill

519

would be identical with the supply of elements of production for
the industrial capitalist and commodities for the merchant. But
it is clear that the division of profit between the lender and bor¬
rower would then, to begin with, completely depend on the relation
of the capital which is lent to that which is the property of the
one who employs it.

According to Mr. Weguelin (B. A. 1857), the rate of interest is
determined by “the amount of unemployed capital” (252); it is
“but an indication of a large amount of capital seeking employ¬
ment” (271); later this unemployed capital becomes “floating cap¬
ital” (485) and by this he means “the Bank of England notes and
other kinds of circulation in the country, for instance, the country
banks circulation and the amount of coin which is in the country
... I include in floating capital the reserves of the bankers” (502,
503), and later also gold bullion (503). Thus the same Mr. Wegue¬
lin says that the Bank of England exerts great influence upon the
rate of interest in times, when “we ” [the Bank of England] “are hol¬
ders of the greater portion of the unemployed capital” (1198), while,
according to the above testimony of Mr. Overstone, the Bank of
England “is no place for capital.” Mr. Weguelin further says: “I
think the rate of discount is governed by the amount of unem¬
ployed capital which there is in the country. The amount of unem¬
ployed capital is represented by the reserve of the Bank of England,
which is practically a reserve of bullion. When, therefore, the bul¬
lion is drawn upon, it diminishes the amount of unemployed capi¬
tal in the country and consequently raises the value of that which
remains” (1258). J. Stuart Mill says (2102): “The Bank is obliged
to depend for the solvency of its banking department upon what
it can do to replenish the reserve in that department; and therefore
as soon as it finds that there is any drain in progress, it is obliged
to look to the safety of its reserve, and to commence contracting its
discounts or selling securities.” — The reserve, in so far as only the
banking department is considered, is a reserve for the deposits
only. According to the Overstones, the banking department is
supposed to act only as a banker, without regard to the “automat¬
ic” issue of notes. But in times of actual stringency the Bank,
independently of the reserve of the banking department', which
consists only of notes, keeps a sharp eye on the bullion reserve,
and must do so if it does not wish to fail. For, to the extent that
the bullion reserve dwindles, so the reserve of bank-notes also
dwindles, and no one should be better informed of this than
Mr. Overstone, who precisely by his Batik Act of 1844 has so
sagaciously arranged this.

CHAPTER XXXIII

THE MEDIUM OF CIRCULATION
IN THE CREDIT SYSTEM

“The great regulator of the velocity of the currency is credit.
This explains why a severe pressure upon the money-market is
generally coincident with a full circulation.” (The Currency Theo¬
ry Reviewed, p. 65.) This is to be taken in a double sense. On the
one hand, all methods which save on medium of circulation are
based upon credit. On the other hand, however, take, for example,
a 500-pound note. A gives it to B on a certain day in payment for
a bill of exchange; B deposits it on the same day with his banker;
the latter discounts a bill of exchange with it on the very same day
for C; C pays it to his bank, the bank gives it to the bill-broker as
an advance, etc. The velocity with which the note circulates here,
to serve for purchases and payments, is effected by the velocity
with which it repeatedly returns to someone in the form of a depos¬
it and passes over to someone else again in the form of a loan. The
pure economy in medium of circulation appears most highly
developed in the clearing house — in the simple exchange of bills of
exchange that are due — and in the preponderant function of money
as a means of payment for merely settling balances. But the very
existence of these bills of exchange depends in turn on credit,
which the industrialists and merchants mutually give one another.
If this credit declines, so does the number of bills, particularly
long-term ones, and consequently also the effectiveness of
this method of balancing accounts. And this economy, which con¬
sists in eliminating money from transactions and rests entirely
upon the function of money as a means of payment, which in
turn is based upon credit, can only be of two kinds (aside from the
more or less developed technique in the concentration of these
payments): mutual claims, represented by bills of exchange or
cheques, are balanced out either by the same banker, who merely

MEDIUM OF CIRCULATION IN CREDIT

52!

transcribes the claim from the account of one to that of another, or
by the various bankers among themselves.11 The concentration of
8 to 10 million bills of exchange in the hands of one bill-broker,
such as the firm of Overend, Gurney & Co., was one of the princi¬
pal means of expanding the scale of such balancing locally. The
effectiveness of the medium of circulation is increased through
this economy in so far as a smaller quantity of it is required simply
to balance accounts. On the other hand the velocity of the money
flowing as medium of circulation (by which it is also economised)
depends entirely upon the flow of purchases and sales, and on
the chain of payments, in so far as they occur successively in
money. But credit effects and thereby increases the velocity of circu¬
lation. A single piece of money, for instance, can effect only five
moves, and remains longer in the hands of each individual as mere
medium of circulation without credit mediating — when A, its
original owner, buys from B, B from C, C from D, D from E, and
E from F, that is, when its transition from one hand to another
is due only to actual purchases and sales. But when B deposits
the money received in payment from A with his banker and the
latter uses it in discounting bills of exchange for G, C in turn
buys from D, D deposits it with his banker and the latter lends it
to E, who buys from F, then even its velocity as mere medium of
circulation (means of purchase) is effected by several credit opera¬
tions: B’s depositing with his banker and the latter’s discounting
for C, D’s depositing with his banker, and the latter’s discounting
for E; in other words through four credit operations. Without
these credit operations, the same piece of money would not have
performed five purchases successively in the given period of time.
The fact that it changed hands without mediation of actual sales
and purchases, through depositing and discounting, has here
accelerated its change of hands in the series of actual transactions.

11 Average number of days during which a bank-note remained in circula¬
tion:

Year

£5 Note

£10 Note

£20-100

£200-500

£1,000

1792

236

209

1818

1846

1856

(Compilation by Marshall, Cashier of the Bank of England, in Report
on Bank Acts, 1857, Appendix II, pp. 300-01.)

522

DIVISION OP PROFIT

We have seen previously that one and the same bank-note can
constitute deposits in several banks. Similarly, it can also consti¬
tute various deposits in the same bank. The banker discounts,
with the note which A has deposited, B’s bill of exchange, B pays
C, and C deposits the same note in the same bank that issued it.

We have already demonstrated in the discussion of simple
money circulation (Buch I, Kap. Ill, 2*) that the mass of actual
circulating money, assuming the velocity of circulation and
economy of payments as given, is determined by the prices of com¬
modities and the quantity of transactions. The same law governs
the circulation of notes.

In the following table, the annual average number of notes of
the Bank of England, in so far as they were in the hands of the pub¬
lic, are recorded, namely, the 5- and 10-pound notes, the 20- to
100-pound notes, and the larger denominations between 200 and
1,000 pounds sterling; also the percentages of the total circulation
that each one of these groupings constitutes. The amounts are in
thousands, i.e., the last three figures are omitted.**

Year

£5-10

Notes

£20 100
Notes

£200-1.000

Notes

Totals
in £

1844

9,263

45.7

5,735

28.3

5,253

26.0

20,241

1845

9,698

46.9

29.3

4,942

23.8

20,722

1846

9,918

48.9

5,778

28.5

4,590

22 6

20,286

1847

9,591

5,498

28.7

4,066

21.2

19,155

1848

8.732

48.3

27.9

4,307

23.8

18.085

1849

8.692

47.2

5,234

28.5

4,477

24.3

18,403

1850

9,164

47.2

5,587

28.8

4,646

24.0

19,398

1851

9,362

48.1

5,554

28.5

4,557

23 4

19,473

1852

9,839

6,161

28.2

5,856

26.8

21,856

1853

10,699

47.3

6,393

28.2

5,541

24.5

22,653

1854

10,565

51.0

28.5

4,234

20.5

20,709

1855

10,628

53.6

28.9

3,459

17.5

19,793

1856

54.4

5.645

28.7

3,323

16.9

19.648

1857

10,659

54.7

5,567

28.6

3.24t

16.7

19,467

(B. A. 1858, p. XXVI.) The total sum of circulating bank-notes,
therefore, positively decreased from 1844 to 1857, although com-

* English edition: Ch. Ill, 2 .—Ed.

** This table reproduces a photo-copy of the source Marx indicated.
Not all its absolute figures are correct. — Ed.

MEDIUM OF CIRCULATION IN CREDIT

523

mercial business, as indicated by exports and imports, had more
than doubled. The smaller bank-notes of £5 and £10 increased,
as the table shows, from £9,263,000 in 1844 to £10,659,000 in
1857. And this took place simultaneously with the particularly
heavy increase in gold circulation at that time. On the other hand,
there was a decrease in the notes of higher denominations (£200 to
£1,000) from £5,856,000 in 1852 to £3,241,000 in 1857, i.e., a
decrease of more than £2 1 /2 million. This is explained as follows:
“On the 8th June 1854, the private bankers of London admitted
the joint-stock banks to the arrangements of the clearing house,
and shortly afterwards the final clearing was adjusted in the Bank
of England. The daily clearances are now effected by transfers in
the accounts which the several banks keep in that establishment.
In consequence of the adoption of this system, the large notes
which the bankers formerly employed for the purpose of adjust¬
ing their accounts are no longer necessary.” (B. A. 1858, p. V.)

To what small minimum the use of money in wholesale trade
has been reduced, can be deduced from the table reprinted in
Book I (Kap. Ill, Note 103),* which was presented to the Bank
Committee by Morrison, Dillon & Co., one of the largest of those
London firms from which a small dealer can buy his entire assort¬
ment of commodities.

According to the testimony of W. Newmarch before the Bank
Committee 1857, No. 1741, other circumstances als'o contributed
to economy in the circulating medium: penny postage, railways,
telegraphy, in short, the improved means of communication;
thus England can now carry on five to six times more business
with about the same circulation of bank-notes. This is also essen¬
tially due to the withdrawal from circulation of notes of higher de¬
nomination than £10. Here Newmarch sees a natural explanation
for the phenomenon that in Scotland and Ireland, where one-
pound notes also circulate, note circulation has risen by about
31% (1747). The total circulation of bank-notes in the United King¬
dom, including one-pound notes, is said to be £39 million (1749).
The gold circulation, £70 million (1750). In Scotland, the circu¬
lation of notes was £3,120,000 in 1834; £3,020,000 in 1844; and
£4,050,000 in 1854 (1752).

From these figures alone, it is evident that banks issuing notes
can by no means increase the number of circulating notes at will,
as long as these notes are at all times exchangeable for money.
(Inconvertible paper money is not considered here at all; inconvert-

• English edition: Ch. Ill, p. 140, Footnote 1. — Ed.

524

DIVISION OP PROFIT

ible bank-notes can become a universal medium of circulation
only where they are actually backed by state credit, as is the case
in Russia at present. They then fall under the laws of inconvertible
paper money issued by the state, which have already been devel¬
oped in Book I (Kap. Ill, 2, c)* “Coin and Symbols of Value.”
—F.E. 1

The quantity of circulating notes is regulated by the turnover
requirements, and every superfluous note wends its way back im¬
mediately to the issuer. Since in England only the notes of the
Bank of England circulate universally as legal means of pay¬
ment, we can disregard at this point the insignificant, and merely
local, note circulation of the country banks.

Before the Bank Committee 1858, Mr. Neave, Governor of the
Bank of England, testifies: “No. 947. (Question:) Whatever meas¬
ures you resort to, the amount of notes with the public,. you say,
remains the same; that is somewhere about £20,000,000? — In ordi¬
nary times, the uses of the public seem to want about £20,000,000.
There are special periodical moments, when, through the year,
they rise to another £1,000,000 or £1,500,000. I stated that, if
the public wanted more, they could always take it from the Bank
of England. — “948. You stated that during the panic the public
would not allow you to diminish the amount of notes; I want you
to account for that. — In moments of panic, the public have, as I
believe, the full power of helping themselves as to notes; and of
course, as long as the Bank has a liability, they may use that lia¬
bility to take the notes from the Bank. ” — “949. Then there seems
to be required, at all times, somewhere about £20,000,000 of legal
tender? — £20,000,000 of notes with the public; it varies. It is
£18,500,000, £19,000,000, £20,000,000, and so on; but taking the
average, you may call it from £19,000,000 to £20,000,000.”

Testimony of Thomas Tooke before the Committee of Lords on
Commercial Distress (C. D. 1848/57), No. 3094: “The Bank has no
power of its own volition to extend the amount of its circulation
in the hands of the public; but it has the power of reducing the
amount of the notes in the hands of the public, not however
without a very violent operation. ”

J. C. Wright, a banker for 30 years in Nottingham, having ex¬
plained at length the impossibility for a country bank to be able to
keep more notes in circulation than the public needs and wants,
says about notes of the Bank of England (C. D. 1848/57), No. 2844:
“I am not aware that there is any check” (for note issue) “upon the

•English edition: Ch. Ill, 2,' c .—Ed.

MEDIUM OF CIRCULATION IN CREDIT

525

Bank of England, but any excess of circulation will go into the
deposits and thus assume a, different name. ”

The same holds true for Scotland, where almost nothing but
paper circulates, because there as well as in Ireland one-pound notes
are also in use and “the Scotch hate gold. " Kennedy, Director of a
Scottish bank, declares that banks could not even contract their
circulation of notes and “conceives that so long as there are inter¬
nal transactions requiring notes or gold to perform them, bankers
must, either through the demands of their depositors or in one
shape or another, furnish as much currency as those transactions
require.... The Scottish banks can restrict their transactions, but
they cannot control their currency.” (Ibid., Nos. 3446, 3448.)
Similarly, Anderson, Director of the Union Bank of Scotland,
states (ibid.. No. 3578): “The system of exchanges between your¬
selves” [among the Scottish banks] “prevents any over-issue on the
part of any one bank? — Yes; there is a more powerful preventive
than the system of exchanges” [which has really nothing to do
with this, but does indeed guarantee the ability of the notes of
each bank to circulate throughout Scotland], “the universal prac¬
tice in Scotland of keeping a bank account; everybody who has any
money at all has a bank account and puts in every day the money
which he does not immediately want, so that at the close of the
business of the day there is no money scarcely out of the banks
except what people have in their pockets.”

The same applies to Ireland, as indicated in the testimony of the
Governor of the Bank of Ireland, MacDonnell, and the Director of
the Provincial Bank of Ireland, Murray, before the same Committee.

Note circulation is just as independent of the state of the gold
reserve in the vaults of the bank which guarantees the convertibili¬
ty of these notes, as it is of the will of the Bank of England. “On
September 18, 1846, the circulation of the Bank of England was
£20,900,000 and the bullion in the Bank £16,273,000; and on
April 5, 1847, the notes in circulation were £20,815,000 and the
bullion £10,246,000.... It is evident that six million of gold were
exported, without any contraction of the currency of the country. ”
(J. G. Kinnear, The Crisis and the Currency, London, 1847, p. 5.)
Of course, this applies only under present conditions prevailing in
England, and even here only in so far as legislation does not decree
a different relationship between the note issue and metal reserve.

Hence only the requirements of business itself exert an influence
on the quantity of circulating money — notes and gold. To be noted
here, in the first instance, are the periodic fluctuations, which re¬
peat themselves annually regardless of the general condition of

526

DIVISION OF PROFIT

business, so that for the past 20 years “the circulation is high in one
month, and it is low in another month, and in a certain other month
occurs a medium point.” (Newmarch, B. A. 1857, No. 1650.)

Thus, in August of every year a few millions, generally in gold,
pass from the Bank of England into domestic circulation to pay the
harvest expenses; since wages are the principal payments to be
made here, bank-notes are less serviceable in England for this
purpose. By the close of the year this money has streamed back
to the Bank. In Scotland, there are almost nothing but one-
pound notes instead of sovereigns; here, then, the note circulation
is expanded in the corresponding situation, namely, twice a year —
in May and November— from 3 million to 4 million; after a fort¬
night the return flow begins, and is almost completed in one
month. (Anderson, C. D. 1848/57, Nos. 3595-3600.)

The note circulation of the Bank of England also experiences a
momentary fluctuation every three months because of the quarter¬
ly payment of “dividends, ” that is, interest on the national debt,
whereby bank-notes are first withdrawn from circulation and then
again released to the public; but they flow back very soon again.
Weguelin (B. A. 1857, No. 38) states that this fluctuation in the
note circulation amounts to two and a half million. Mr. Chapman
of the notorious firm of Overend, Gurney & Co., however, esti¬
mates the amount of disturbance thus created in the money-market
as being much higher. “When you abstract from the circulation
£6,000,000 or £7,000,000 of revenue in anticipation of dividends,
somebody must be the medium of supplying that in the interme¬
diate times.” (B. A. 1857, No. 5196.)

Far more significant and enduring are the fluctuations in quan¬
tity of circulating medium corresponding to the various phases
of the industrial cycle. Let us listen to another associe of that
firm on this question, the esteemed Quaker Samuel Gurney (C. D.
1848/57, No. 2645): “At the end of October (1847) the amount of
bank-notes in the hands of the public was £20,800,000. At that
period there was great difficulty in getting possession of bank¬
notes in the money-market. This arose from the alarm of not
being able to get them in consequence of the restriction of the Act
of 1844. At present (March 1848) the amount of bank-notes in the
hands of the public is ... £17,700,000, but there being now no com¬
mercial alarm whatsoever, it is much beyond what is required.
There is no banking house or money-dealer in London, but what
has a larger amount of bank-notes than they can use.” — “2650.
The amount of bank-notes ... out of the custody of the Bank of
England affords a totally insufficient exponent of the active state

MEDIUM OF CIRCULATION IN CREDIT

527

of the circulation, without taking into consideration likewise ...
the state of the commercial world and the state of credit. ” — “2651.
The feeling of surplus that we have under the present amount of
circulation in the hands of the public arises in a large degree from
our present state of great stagnation. In a state of high prices and
excitement of transaction £17,700,000 would give us a feeling of
restriction. ”

[As long as the state of business is such that returns of loans
made come in regularly and credit thus remains unshaken, the
expansion and contraction of circulation depend simply upon the
requirements of industrialists and merchants. Since gold, at least
in England, does not come into question in the wholesale trade and
the circulation of gold, aside from seasonal fluctuations, may be
regarded as rather constant over a long period of time, the note
circulation of the Bank of England constitutes a sufficiently accu¬
rate measure of these changes. In the period of stagnation following
a crisis, circulation is smallest; with the renewed demand, a great¬
er need for circulating medium develops, which increases with
rising prosperity; the quantity of circulating medium reaches its
apex in the period of over-tension and over-speculation — the crisis
precipitously breaks out and overnight bank-notes which yes¬
terday were still so plentiful disappear from the market and with
them the discounters of bills, lenders of money on securities, and
buyers of commodities. The Bank of England is called upon for
help — but even its powers are soon exhausted, for the Bank Act
of 1844 compels it to contract its note circulation at the very mo¬
ment when the whole world cries out for notes; when owners of
commodities cannot sell, yet are called upon to pay and are pre¬
pared for any sacrifice, if only they can secure bank-notes. “During
an alarm,” says the earlier mentioned banker Wright ( loc . cit .,
No. 2930), “the country requires twice as much circulation as in
ordinary times, because the circulation is hoarded by hankers and
others. ”

Once the crisis has broken out, it becomes from then on only a
question of means of payment. But since every one is dependent
upon someone else for the receipt of these means of payment, and
no one knows whether the next one will be able to meet his pay¬
ments when due, a regular stampede ensues for those means of pay¬
ment available on the market, that is, for bank-notes. Everyone
hoards as many of them as he can lay hand on, and thus the notes
disappear from circulation on the very day when they are most
needed. Samuel Gurney (C. D. 1848/57, No. 1116) estimates the
amount of bank notes brought under lock and key in October

528

DIVISION OF PROFIT

1847, at a time of such alarm, to have reached £4 to £5 million. —
F.E.)

In this connection, the cross-examination of Chapman, Gurney’s
associate who has been previously mentioned, before the Bank
Committee of 1857 is especially interesting. I present here its
principal contents in context, although certain points are touched
upon which we shall not examine until later.

Mr. Chapman has the following to say:

“4963. I have also no hesitation in saying that I do not think it
is a proper condition of things that the money-market should be
under the power of any individual capitalist (such as does exist
in London), to create a tremendous scarcity and pressure, when we
have a very low state of circulation out. That is possible ... there
is more than one capitalist, who can withdraw from the circulating
medium £1,000,000 or £2,000,000 of notes, if they have an object
to attain by it.” — 4965.* A big speculator can sell £1,000,000 or
£2,000,000 of consols and thus take the money out of the market.
Something similar to this has happened quite recently, “it creates
a very violent pressure. ”

4967. The notes are then indeed unproductive. “But that is noth¬
ing, if it effects his great object; his great object is to knock down
the funds, to create a scarcity, and he has it perfectly in his power
to do so. An illustration: One morning there was a great demand
for money in the Stock Exchange; nobody knew its cause; somebody
asked Chapman to lend him £50,000 at 7%. Chapman was aston¬
ished, for his rate of interest was much lower; he accepted. Soon
after that the man returned, borrowed another £50,000 at 71,2%,
then £100,000 at 8%, and wanted still more at 8 V2%. Then even
Chapman became uneasy. Later it turned out that a considerable
sum of money had been suddenly withdrawn from the market.
But, says Chapman, “I did lend a large sum at 8%; I was afraid to
go beyond; I did not know what was coming.”

It must never be forgotten that, although £19 to £20 million
in notes are almost constantly supposed to be in the hands of the
public, nevertheless, the portion of these notes which actually cir¬
culates, and, on the other hand, the portion which is held idle by
the banks as a reserve, continually and significantly vary with
respect to each other. If this reserve is large, and therefore the
actual circulation small, it means, from the point of view of the
money-market, that the circulation is full, money is plentiful;
if the reserve is small, and therefore the actual circulation full, in

* In the German 1894 edition this reads: 4995. — Ed.

MEDIUM OF CIRCULATION IN CREDIT

529

the language of the money-market the circulation is low, money
is scarce — in other words, the portion representing idle loan capi¬
tal is small. A real expansion or contraction of the circulation,
that is independent of the phases of the industrial cycle— with
the amount needed by the public, however, remaining the same —
occurs only for technical reasons, for instance, on the dates when
taxes or the interest on the national debt are due. When taxes are
paid, more notes and gold than usual flow into the Bank of England
and, in effect, contract the circulation without regard to its needs.
The reverse takes place when the dividends on the national debt
are paid out. In the former case, loans are made from the Bank in
order to obtain circulating medium. In the latter case, the rate of
interest falls in private banks because of the momentary growth
of their reserves. This has nothing to do with the absolute quantity
of circulating medium; it does, however, concern the banking
firm which sets this circulating medium in motion and for which
this process consists in the alienation of loan capital and for which
it pockets the profits thereby.

In the one case, there is merely a temporary displacement of
circulating medium, which the Bank of England balances by
short-term loans at low interest shortly before the quarterly
taxes and also before the quarterly dividends on the national debt
become due; the issue of these supernumerary notes first fills up
the gap caused by the payment of taxes, while their return pay¬
ment to the Bank soon thereafter brings back the excess of notes
obtained by the public through the payment of dividends.

In the other case, low or full circulation is always simply a matter
of different distribution of the same quantity of circulating medium
into active circulation and deposits, i.e., an instrument of loans.

On the other hand, if, for example, the number of notes issued is
increased on the basis of a flow of gold into the Bank of England,
these notes assist in discounting bills outside of the Bank and re¬
turn to it through the repayment of loans, so that the absolute
quantity of circulating notes is only momentarily increased.

If the circulation is full because of business expansion (which
may take place even though prices are relatively low), then the
rate of interest can be relatively high because of the demand for
loan capital as a result of rising profits and increased new invest¬
ments. If it is low, because of business contraction, or perhaps
because credit is very plentiful, the rate of interest can be low even
though prices are high. (See Hubbard.*)

Present edition: p. 549. — Ed

530

DIVISION OF PROFIT

The absolute amount of circulation has a determining influence
on the rate of interest only in times of stringency. The demand for
full circulation can either reflect merely a demand for a hoarding
medium (disregarding the reduced velocity of the money circula¬
tion and the continuous conversion of the same identical pieces of
money into loan capital) owing to lack of credit, as was the case
in 1847 when the suspension of the Bank Act did not cause any ex¬
pansion of the circulation, but sufficed to draw forth the hoarded
notes and to channel them into circulation; or it may be that more
means of circulation are actually required under the circumstances,
as was the case in 1857 when the circulation actually expanded
for some time after the suspension of the Bank Act.

Otherwise, the absolute quantity of circulation has no influence
whatever upon the rate of interest, since — assuming the economy
and velocity of currency to be constant — it is determined in the
first place by commodity-prices and the quantity of transactions
(whereby one of these generally neutralises the effect of the other),
and finally by the state of credit, whereas it by no means exerts
the reverse effect upon the latter; and, secondly, since commodity-
prices and interest do not necessarily stand in any direct correla¬
tion to each other.

During the life of the Bank Restriction Act (1797-1819) a sur¬
plus of currency existed and the rate of interest was always much
higher than after the resumption of cash payments. Later, it fell
rapidly with the restriction of the note issue and rising bill quota¬
tions. In 1822, 1823, and 1832, the general circulation was low,
and so was the rate of interest. In 1824, 1825, and 1836, the circu¬
lation was full and the rate of interest rose. In the summer of
1830 the circulation was full and the rate of interest low. Since
the gold discoveries, money circulation throughout Europe has
expanded, and the rate of interest risen. Therefore, the rate of
interest does not depend upon the quantity of circulating money.

The difference between the issue of circulating medium and the
lending of capital is best demonstrated in the actual reproduc¬
tion process. We have seen (Book II, Part III) in what manner
the different component parts of production are exchanged for
one another. For example, variable capital consists materially
of the means of subsistence of the labourers, a portion of their
own product. But this is paid out to them piecemeal in money.
The capitalist has to advance this, and it is very greatly dependent
on the credit system organisation whether he can pay out the new
variable capital the following week with the old money which he
paid out in the previous week. The same holds for exchange among

MEDIUM OF CIRCULATION IN CREDIT

531

various component parts of the total social capital, for instance,
between means of consumption and means of production of means
of consumption. The money for their circulation, as we have
seen, must be advanced by one or both of the exchanging parties.
It remains thereupon in circulation, but returns after the exchange
has been completed to the one who advanced it, since it had
been advanced by him over and above his actually employed
industrial capital (Book II, Chap. XX*). Under a developed
system of credit, with the money concentrated in the hands of ban¬
kers, it is they, at least nominally, who advance it. This advance
refers only to money in circulation. It is an advance of circulation,
not an advance of capitals which it circulates.

Chapman: “5062. There may be times, when the notes in the
hands of the public, though they may be large, are not to be had. ”
Money also exists during a panic; but everyone takes good care
not to convert it into loanable capital, i.e., loanable money;
everyone holds on to it for the purpose of meeting real payment
needs.

“5099. The country bankers in rural districts send up their unem¬
ployed balances to yourselves and other houses? — Yes.” — “5100.
On the other hand, the Lancashire and Yorkshire districts require
discounts from you for the use of their trades?— Yes. ”—“5101.
Then by that means the surplus money of one part of the country
is made available for the demands of another part of the country?
—Precisely so.”

Chapman states that the custom of banks to invest their surplus
money-capital for short periods in consols and treasury notes has
decreased considerably of late, ever since it has become customary
to lend this money at call, i.e., payable on demand. He personally
considers the purchase of such paper for his business very imprac¬
tical. He, therefore, invests his money in reliable bills of exchange,
some of which become due every day, so that he always knows
how much ready money he can count on from day to day. [5101 to
5105.]

Even the growth of exports expresses itself more or less for every
country, but particularly for the country granting credit, as an
increasing demand on the domestic money-market, which is not
felt, however, until a period of stringency. When exports increase,
British manufacturers usually draw long-term bills of exchange
on the export merchants against consignments of British goods
(5126). — “5127. Is it not frequently the case that an understanding

* English edition: Vol. II, pp. 411-21. — Ed.

532

DIVISION OF PROFIT

exists that those bills are to be redrawn from time to time? —
[Chapman:] That is a thing which they keep from us; we should
not admit any bill of that sort. ... I dare say it is done, but I cannot
speak to a thing of the kind.” [The innocent Chapman.] “5129.
If there is a large increase of the exports of the country, as there was
last year, of £20 million, will not that naturally lead to a
great demand for capital for the discount of bills representing those
exports?— No doubt. “5130. Inasmuch as this country gives
credit, as a general rule, to foreign countries for all exports, it
would be an absorption of a corresponding increase of capital for
the time being?— This country gives an immense credit; but then
it takes credit for its raw material. We are drawn upon from
America always at 60 days, and from other parts at 90 days. On
the other hand we give credit; if we send goods to Germany, we
give two or three months. ”

Wilson inquires of Chapman (5131), whether bills of exchange
on England are not drawn simultaneously with the loading of
these imported raw materials and colonial goods and whether these
bills of exchange do not arrive simultaneously with the bills of
lading. Chapman believes so, but does not profess to know any¬
thing about such “commercial ” transactions and suggests that ex¬
perts in this field be questioned. — In exporting to America, remarks
Chapman, “the goods are symbolised in transit” 5133; this gib¬
berish is supposed to mean that the English export merchant draws
against his commodities bills of exchange with a four-month
term on one of the big American banking houses in London and
this firm receives collateral from America.

“5136. As a general rule, are not the more remote transactions
conducted by the merchant, who waits for his capital until the
goods are sold?— There may be houses of great private wealth,
who can afford to lay out their own capital and not take any ad¬
vance upon the goods; but the most part are converted into advances
by the acceptances of some well-known established houses. ” —
“5137. Those houses are resident in ... London, or Liverpool, or
elsewhere.” — “5138. Therefore, it makes no difference, whether
the manufacturer lays out his money, or whether he gets a mer¬
chant in London or Liverpool to advance it; it is still an advance
in this country? — Precisely. The manufacturer in few cases has
anything to do with it” [but in 1847 in almost every case]. “A
man dealing in manufactured goods, for instance, at Manchester,
will buy his goods and ship them through a house of respectabili¬
ty in London; when the London house is satisfied that they are all
packed according to the understanding, he draws upon this Lon-

MEDIUM OF CIRCULATION IN CREDIT

533

don house for six months against these goods to India or China,
or wherever they are going; then the banking world comes in and
discounts that bill for him; so that, by the time he has to pay for
those goods, he has the money all ready by the discount of that
bill.” — “5139. Although he has the money, the banker is laying
out of his money? — The banker has the bill; the banker has bought
the bill ; he uses his banking capital in that form, namely, in
discounting commercial bills.” [Hence even Chapman does not
regard the discounting of bills as an advance of money, but as a
purchase of commodities. — F.E.] — “5140. Still that forms part
of the demand upon the money-market in London? — No doubt; it
is the substantial occupation of the money-market and of the Bank
oi England. The Bank of England are as glad to get these bills as
we are, because they know them to be good property.” — “5141.
In that way, as the export trade increases, the demand upon the
money-market increases also? — As the prosperity of the country
increases, we” [the Chapmans] “partake of it.”— “5142. Then
when these various fields for the employment of capital increase
suddenly, of course, the natural consequence is that the rate of
interest is higher? — No doubt about it.

In 5143 Chapman cannot “quite understand, that under our
large exports we have had such occasion for bullion.”

In 5144 the esteemed Wilson asks: “May it not be that we give
larger credits upon our exports than we take credits upon our im¬
ports?— I rather doubt that point myself. If a man accepts against
his Manchester goods sent to India, you cannot accept for less than
ten months. We have had to pay America for her cotton (that is
perfectly true) some time before India pays us;- but still it is
rather refined in its operation. ” — “5145. If we have had an increase,
as we had last year, of £20 million in our exports of manufactures
we must have had a very large increase of imports of raw material
previously to that” [and in this way over-exports are already iden¬
tified with over-imports, and over-production with over-trading],
“in order to make up that increased quantity of goods? — No doubt.”
— “5146. We should have to pay a very considerable balance, that
is to say, the balance, no doubt, would run against us during that
time, but in the long run, with America ... the exchanges are in
our favour, and we have been receiving for some time past large
supplies of bullion from America.”

5148. Wilson asks the arch-usurer Chapman, whether he does
not regard his high rate of interest as a sign of great prosperity and
a high rate of profit. Chapman, evidently surprised at the naivete
of this sycophant, affirms this, of course, but has enough integrity

18—2494

534

DIVISION OP PROFIT

to add the following: “There are some, who cannot help them¬
selves; they have engagements to meet, and they must fulfil them,
whether it is profitable or not; but, for a continuance ” [of the high
rate of interest], “it would indicate prosperity. ” — Both forget
that a high rate of interest can also indicate, as it did in 1857,
that the country is undermined by the roving cavaliers of credit
who can afford to pay a high interest because they pay it out of
other people’s pockets (whereby, however, they help to determine
the rate of interest for all), and meanwhile they live in grand style
on anticipated profits. Simultaneously, precisely this can inciden¬
tally provide a very profitable business for manufacturers and
others. Returns become wholly deceptive as a result of the loan
system. This also explains the following, which should require no
explanation so far as the Bank of England is concerned, since it
discounts at a lower rate than others when the interest rate is
high.

“5156. I should say, ” says Chapman, “that our discounts, tak¬
ing the present moment, when we have had for so long a high rate
of interest, are at their maximum.” [Chapman made this state¬
ment on July 21, 1857, a couple of months before the crash. ] —
“5157. In 1852” [when the interest rate was low] “they were not
nearly so large.” For business was indeed a great deal sounder
then.

“5159. If there was a great flood of money in the market ... and
the bank-rate low, we should get a decrease of bills. ... In 1852
there was a totally different phase of things. The exports and
imports of the country were as nothing then compared to the
present. ”—“5161. Under this high rate of discount our discounts
are as large as they were in 1854. ” [When the rate of interest was
between 5 and 5V2%. 1

A very amusing part of Chapman’s testimony reveals how these
people really regard public money as their own and assume for
themselves the right to constant convertibility of the bills of ex¬
change discounted by them. The questions and replies show great
naivete. It becomes the obligation of legislation to make those bills
which are accepted by large firms convertible at all time; to ensure
that the Bank of England should under all circumstances continue
to rediscount them for bill-brokers. And yet three of such bill-
brokers went bankrupt in 1857, owing about 8 million and their own
infinitesimally small capital compared with these debts. — “5177.
Do you mean by that that you think that they” [that is bills
accepted by Barings or Loyds ] “ought to be discountable on com¬
pulsion, in the same way that a Bank of England note is now ex-

MEDIUM OF CIRCULATION IN CREDIT

535

changeable against gold by compulsion? — 1 think it would be a
very lamentable thing, that they should not be discountable; a
most extraordinary position, that a man should stop payment,
who had the acceptances of Smith, Payne &Co., or Jones, Loyd
& Co. in his hands, because he could not get them discounted. ” —
“5178. Is not the engagement of Messrs. Baring an engagement to
pay a certain sum of money when the bill is due? — That is perfect¬
ly true; but Messrs. Baring, when they contract that engagement,
and every other merchant who contracts an engagement, never
dream that they are going to pay it in sovereigns; they expect
that they are going to pay it at the Clearing House.” — “5180. Do
you think that there should be any machinery contrived by which
the public would have a right to claim money before that bill was
due by calling upon somebody to discount it?— No, not from the
acceptor; but if you mean by that that we are not to have the possi¬
bility of getting commercial bills discounted, we must alter the
whole constitution of things.” — “5182. Then you think that it”
[commercial bill 1 “ought to be convertible into money, exactly
in the same way that a Bank of England note ought to be converti¬
ble into gold? — Most decidedly so, under certain circumstances. ”
— “5184. Then you think that the provisions of the currency
should be so shaped that a bill of exchange of undoubted character
ought at all times to be as readily exchangeable against money
as a bank-note?— I do. ”—“5185. You do not mean to say that
either the Bank of England or any individual should, by law, be
compelled to exchange it?— I mean to say this, that in framing a
bill for the currency, we should make provision to prevent the
possibility of an inconvertibility of the bills of exchange of the
country arising, assuming them to be undoubtedly solid and
legitimate. ” — This Is the convertibility of the commercial bill as
compared with the convertibility of bank-notes.

“5190. The money-dealers of the country only, in point of
fact, represent the public.” As did Mr. Chapman later before
the court of assizes in the Davidson case. See the Great City
Frauds. *

“5196. During the quarters” [when the dividends are paid] “it
is ... absolutely necessary that we should go to the Bank of
England. When you abstract from the circulation £6,000,000 or
£7,000,000 of revenue in anticipation of the dividends, somebody
must be the medium of supplying that in the intermediate time. ”

* S. Laing, New Series of the Great City Frauds of Cole, Davison, and
Cordon, London. — Ed.

18*

536

DIVISION OP PROFIT

— (In this case it is then a question of a supply of money, not of
capital or loan capital. ]

“5169. Everybody acquainted with our commercial circle must
know that when we are in such a state that we find it impossible
to sell Exchequer bills, when India bonds are perfectly useless*
when you cannot discount the first commercial bills, there must
be great anxiety on the part of those whose business renders them
liable to pay the circulating medium of the realm on demand,
which is the case with all bankers. Then the effect of that is to
make every man double his reserve. Just see what the result of
that is throughout the country, that every country banker, of
whom there are about 500, has to send up to his London corre¬
spondent to remit him £5,000 in bank-notes. Taking such a limited
sum as that as the average, which is quite absurd, you come
to £2,500,000 taken out of the circulation. How is that to be
supplied? ”

On the other hand, the private capitalists, etc., who have money
do not let go of it at any interest, for they say after the manner
of Chapman, “5195. We would rather have no interest at all, than
have a doubt about our getting the money in case we require it. ”

“5173. Our system is this: That we have £300,000,000 of liabili¬
ties which may be called for at a single moment to be paid in the
coin of the realm, and that coin of the realm, if the whole of it is
substituted, amounts to £23,000,000, or whatever it may be; is
not that a state which may throw us into convulsions at any
moment? ” Hence the sudden change of the credit system into a
monetary system during crises.

Aside from the domestic panic during crises, one can speak of
the quantity of money only in so far as it concerns bullion, univer¬
sal money. And this is precisely what Chapman excludes; he speaks
only of 23 million in bank-notes.

The same Chapman: “5218. The primary cause of the derange¬
ment of the money-market ” [in April and later in October 1847 ]
“no doubt was in the quantity of money which was required to
regulate our exchanges, in consequence of the extraordinary im¬
portations of the year. ”

In the first place, this reserve of world-market money had then
been reduced to its minimum. Secondly, it served at the same time
as security for the convertibility of credit-money, bank-notes.
It combined in this manner two quite different functions, both
of which, however, stem from the nature of money, since real
money is always world-market money, and credit-money always
rests upon world-market money.

MEDIUM OF CIRCULATION IN CREDIT

537

In 1847, without the suspension of the Bank Act of 1844, “the
clearing houses could not have been settled.” (5221.)

That Chapman had an inkling of the imminent crisis, after all:
“5236. There are certain conditions of the money-market (and the
present is not very far from it), where money is exceedingly diffi¬
cult, and recourse must be had to the Bank.”

“5239. With reference to the sums which we took from the Bank
on the Friday, Saturday and Monday, the 19th, 20th, and 22nd
of October, 1847, we should only have been too thankful to have
got the bills back on the Wednesday following; the money reflowed
to us directly the panic was over.’ — On Tuesday, October 23,
the Bank Act was suspended and the crisis was thus broken.

Chapman believes (5274) that the bills of exchange running
simultaneously on London amount to £100 or £120 million. This
does not include local bills made on provincial firms.

“5287. Whereas in October 1856, the amount of the notes in the
hands of the public ran up to £21,155,000, there was an extraordi¬
nary difficulty in obtaining money; notwithstanding that the pub¬
lic held so much, we could not touch it.” — This was due to the
fear caused by the squeeze in which the Eastern Bank found itself
for a period of time (March 1856).

5290-92. As soon as the panic is over, “all bankers deriving
their profit from interest begin to employ the money immediately. ”
5302. Chapman does not explain the uneasiness that exists when
the bank reserve decreases as being due to apprehension concerning
deposits, but rather that all those who suddenly may be compelled
to pay large sums of money are well aware they may be driven to
seek their last refuge in the bank when there is a stringency in the
money-market; and “if the banks have a very small reserve, they
are not glad to receive us; but on the contrary. ”

It is pretty, incidentally, to observe how the reserve as a real
magnitude dwindles away. Bankers hold a minimum for current
business needs either in their own hands or the Bank of England.
Bill-brokers hold the “loose bank money of the country” without
any reserve. And the Bank of England has nothing to offset its
liabilities for deposits but the reserves of bankers and others,
together with some public deposits, etc., which it permits to drop
to a very low level, for instance, to £2 million. Aside from these
£2 million in paper, then, this whole swindle has absolutely no
other reserve but the bullion reserve in times of stringency (and
this reduces the reserve, because the notes which come in to replace
outgoing bullion must be cancelled), and thus every reduction of
this reserve by drain on gold increases the crisis.

538

DIVISION OF PROFIT

“5306. If there should not be currency to settle the transactions
at the clearing house, the only next alternative which I can see is
to meet together, and to make our payments in first-class bills,
bills upon the Treasury, and Messrs. Smith, Payne, and so forth. ”
— “5307. Then, if the government failed to supply you with a circu¬
lating medium, you would create one for yourselves? — What can
we do? The public come in, and take the circulating medium out
of our hands; it does not exist. ”—“5308. You would only then do
in London what they do in Manchester every day of the week?—
Yes. ”

Particularly clever is Chapman’s reply to a question posed by
Cayley (a Birmingham man oi the Attwood school) regarding Over¬
stone’s conception of capital: “5315. It has been stated before this
Committee, that in a pressure like that of 1847, men are not look¬
ing for money, but are looking for capital; what is your opinion
in that respect? — I do not understand it; we only deal in money; I
do not understand what you mean by it.” — “5316. If you mean
thereby [commercial capital ] the quantity of money which a man
has of his own in his business, if you call that capital, it forms,
in most cases, a very small proportion of the money which he
wields in his affairs through the credit which is given him by the
public” — through the mediation of the Chapmans.

“5339. Is it the want of property that makes us give up our spe¬
cie payments? — Not at all.... It is not that we want property, but it
is that we are moving under a highly artificial system; and if we
have an immense superincumbent demand upon our currency,
circumstances may arise to prevent our obtaining that currency.
Is the whole commercial industry of the country to be paralysed?
Shall we shut up all the avenues of employment? “5338. If the
question should arise whether we should maintain specie payments,
or whether we should maintain the industry of the country, I have
no hesitation in saying which I should drop. ”

Concerning the hoarding of bank-notes “with a view to aggravate
the pressure and to take advantage of the consequences ” [5358),
he says that this can very easily occur. Three large banks would
be sufficient. “5383. Must it not be within your knowledge, as a
man conversant with the great transactions of this metropolis,
that capitalists do avail themselves of these crises to make enor¬
mous profit out of the ruin of the people who fall victims to them?
— There can be no doubt about it. ” — And we may well believe Mr.
Chapman on this score, although he finally broke his own neck,
commercially speaking, in an attempt at making “enormous
profit out of the ruin of victims." For while his associate Gurney

MEDIUM OF CIRCULATION IN CREDIT

539

says: Every change in business is advantageous for one who is
well informed, Chapman says: “The one section of the communi¬
ty knows nothing of the other; one is the manufacturer, for in¬
stance; who exports to the continent, or imports his raw commod¬
ity; he knows nothing of the man who deals in bullion.” (5046.) —
And thus it happened that one fine day Gurney and Chapman
themselves “were not well informed” and went into ill-famed
bankruptcy.

We have previously seen that note issue does not in all cases
signify an advance of capital. The following testimony by Tooke
before the C. D. Committee of Lords, 1848, indicates merely that
an advance of capital, even if accomplished by the bank through
an issue of new notes, does not unqualifiedly signify an increase in
the number of circulating notes:

“3099. Do you think that the Bank of England for instance
might enlarge its advances greatly, and yet lead to no additional
issue of notes? — There are facts in abundance to prove it; one of
the most striking instances was in 1835, when the Bank made use
of the West India deposits and of the loan from the East India
Company in extended advances to the public. At that time the
amount of notes in the hands of the public was actually rather
diminished. And something like the same discrepancy is observa¬
ble in 1846 at the time of the payment of the railway deposits into
the Bank; the securities [in discount and deposits) were increased
to about thirty million, while there was no perceptible effect upon
the amount of notes in the hands of the public. ”

Aside from bank-notes, wholesale trade has another medium of
circulation, which is far more important to it, namely, bills of
exchange. Mr. Chapman showed us how essential it is for the regu¬
lar flow of business that good bills of exchange be accepted in pay¬
ment everywhere and under all conditions. “Gilt nicht mehr der
Tausves Jontof, was soli gelten, Zeter, Zeterl"* How are these
two media of circulation related to one another?

Gilbart writes on this score: The reduction of the amount of

the note circulation uniformly increases the amount of the bill
circulation. These bills are of two classes — commercial bills and
bankers’ bills ... when money becomes scarce, the money-lenders
say, ‘draw upon us and we will accept'. And when a country banker
discounts a bill for his customer, instead of giving him the cash,

* “If the Tausves-Jontof's nothing,
What is left? 0 vile detractor! "
Heine, Disputation. — Ed.

540

DIVISION OF PROFIT

he will give him his own draft at twenty-one days upon his London
agent. These bills serve the purpose of a currency. ” (J. W. Gilbart,
An Inquiry into the Causes of the Pressure, etc., p. 31.)

This is corroborated in somewhat modified form by Newmarch,
B. A. 1857, No. 1426:

“There is no connection between the variations in the amount
of bill circulation and the variations in the bank-note circulation...
the only pretty uniform result is ... that whenever there is any
pressure upon the money-market, as indicated by a rise in the rate
of discount, then the volume of the bill circulation is very much
increased, and vice versa.”

However, the bills of exchange drawn at such times are by no
means only the short-term bank-bills mentioned by Gilbart. On
the contrary, they are largely bills of accommodation, which rep¬
resent no real transaction at all, or simply transactions made for
the sole purpose of drawing bills of exchange on them; we have
presented sufficient illustrations of both. Hence the Economist
(Wilson) says in comparing the security of such bills with that of
bank-notes: “Notes payable on demand can never be kept out in
excess, because the excess would always return to the banK for pay¬
ment, while bills at two months may be issued in great excess,
there being no means of checking the issue till they have arrived
at maturity, when they may have been replaced by others. For a
people to admit the safety of the circulation of bills payable only
on a distant day, and to object to the safety of a circulation of
paper payable on demand, is, to us, perfectly unaccountable.”
(Economist, May 22, 1847, p. 575.)

The quantity of circulating bills of exchange, therefore, like
that of bank-notes, is determined solely by the requirements of
commerce; in ordinary times, there circulated in the fifties in the
United Kingdom, in addition to 39 million in bank-notes, about
300 million in bills of exchange — of which 100-120 million were
made out on London alone. The volume of circulating bills of ex¬
change has no influence on note circulation and is influenced by
the latter only in times of money tightness, when the quantity of
bills increases and their quality deteriorates. Finally, in a period
of crisis, the circulation of bills collapses completely; nobody can
make use of a promise to pay since everyone will accept only cash
payment; only the bank-note retains, at least thus far in England,
its ability to circulate, because the nation with its total, wealth
backs up the Bank of England.

MEDIUM OF CIRCULATION IN CREDIT

541

We have seen that even Mr. Chapman, who after all was himself
a magnate on the money-market in 1857, complains bitterly that
there were several large money-capitalists in London strong
enough to disrupt the whole money-market at any given moment
and thereby bleed white the smaller money-dealers. There were
several such money sharks, he said, who could considerably inten¬
sify a stringency by selling one or two million’s worth of consols
and thereby withdrawing an equal amount of bank-notes (and
simultaneously available loan capital) from the market. The joint
action of three large banks would suffice to transform a stringency
into a panic by a similar manoeuvre.

The largest capital power in London is, of course, the Bank of
England, which, however, is prevented by its status as a semi¬
government institution from showing its domination in such a
brutal manner. Nevertheless it also knows enough about ways
and means of feathering its nest, particularly since the Bank
Act of 1844.

The Bank of England has a capital of £14,553,000, and in addi¬
tion has at its disposal about £3 million “balance, ” that is, undis¬
tributed profits, as well as all money collected by the government
for taxes, etc., which must be deposited with the Bank until it
is needed. If we add to this the sum of other deposits, about £30
million in ordinary times, and the bank-notes issued without
reserve backing, we shall find that Newmarch made a rather
conservative estimate in stating ^B. A. 1857, No. 1889): “I satis¬
fied myself that the amount of funds constantly employed in the
[London i money-market may be described as something like
£120,000,000; and of that £120,000,000 a very considerable pro¬
portion, something like 15 or 20 per cent, is wielded by the Bank
of England.”

In so far as the Bank issues notes which are not covered by the
bullion reserve in its vaults, it creates symbols of value that con¬
stitute for it not only circulating medium, but also additional —
even if fictitious — capital to the nominal amount of these unbacked
notes. And this additional capital yields additional profit. —
In B. A. 1857, Wilson questions Newmarch: “1563. The circula¬
tion of a banker, so far as it is kept out upon the average, is an
addition to the effective capital of that banker, is it not?— Certain¬
ly.” — “1564. Then whatever profit he derives from that circula¬
tion is a profit derived from credit, and not from a capital which he
actually possesses? — Certainly. ”

The same is true, of course, for private banks issuing notes. In
his replies Nos. 1866 to 1868, Newmarch considers two-thirds of

542

DIVISION OF PROFIT

all bank-notes issued by them (the last third has to he covered by
bullion reserve in these banks) as “the creation of so much capital ”,
because this amount of coin is saved. The profit of the banker
as a result of this may not be larger than that of other capitalists.
The fact remains that he draws the profit out of this national
saving of coin. The fact that a national saving becomes a private
profit does not shock the bourgeois economist in the least, since
profit is generally the appropriation of national labour. Is there
anything more absurd, for instance, than the Bank of England
(1797 to 1817) — whose notes have credit only thanks to the state —
taking payment from the state, i.e., from the public, in the form
of interest on government loans, for the power granted it by the
state to transform these same notes from paper into money and
then to lend it back to the state?

The banks, incidentally, have still other means of creating capi¬
tal. Again according to Newmarch, the country banks, as mentioned
above, are accustomed to send their superfluous funds (that is,
Bank of England notes) to London bill-brokers, in return for dis¬
counted bills of exchange. With these bills of exchange, the bank
serves its customers, since it follows a rule not to reissue bills of
exchange received from its local customers, in order to prevent
their business transactions from becoming known in their own
neighbourhood. These bills received from London not only serve
the purpose of being issued to customers who have to make direct
payments in London, in the event they do not prefer to get the
bank's own draft on London; they also serve to settle payments lo¬
cally, since the banker’s endorsement secures local credit for them.
Thus, in Lancashire, for instance, all the local banks’ own notes
and a large portion of Bank of England notes have been pushed
out of circulation by such bills. (Ibid., 1568 to 1574.)

Thus we see here how banks create credit and capital by 1) issu¬
ing their own notes, 2) writing out drafts on London running up to
21 days, but paid in cash to them immediately on issue and 3) pay¬
ing out discounted bills of exchange, which are endowed with
credit primarily and essentially by endorsement through the bank
— at least as far as concerns the local district.

The power of the Bank of England is revealed by its regulation
of the market rate of interest. In times of normal activity, it may
happen that the Bank cannot prevent a moderate drain of gold
from its bullion reserve by raising the discount rate13 because the

14 At the general meeting of stockholders of the Union Bank of London
on January 17, 1894, President Ritchie relates that the Bank of England
raised the discount in 1893 from 2l/,% in July to 3 and 4% in August, and

MEDIUM OF CIRCULATION IN CREDIT

543

demand for means of payment is satisfied by private banks, stock
banks and bill-brokers, who have gained considerably in capital
power during the last thirty years. In such case, the Bank of Eng¬
land must have recourse to other means. But the statement made
by banker Glyn (of Glyn, Mills, Currie & Co.) before the C. D.
1848/57 still holds good for critical periods: — “1709. Under circum¬
stances of great pressure upon the country the Bank of England
commands the rate of interest. ” — “1710. In times of extraordinary
pressure ... whenever the discounts of the private bankers or brokers
become comparatively limited, they fall upon the Bank of Eng¬
land, and then it is that the Bank of England has the power of
commanding the market rate.”

Nevertheless, the Bank of England, being a public institution
under government protection and enjoying corresponding privi¬
leges, cannot exploit its power as ruthlessly as does private busi¬
ness. For this reason Hubbard remarks before the Banking Commit¬
tee (B. A. 1857): “2844. [Question:] Is not it the case that when
the rate of discount is highest, the Bank is the cheapest place to go,
and that when it is the lowest, the bill-brokers are the cheapest
parties? — [Hubbard:] That will always be the case, because the
Bank of England never goes quite so low as its competitors, and
when the rate is highest, it is never quite as high.”

But it is a serious event in business life nevertheless when, in
time of stringency, the Bank of England puts on the screw, as the
saying goes, that is, when it raises still higher the interest rate
which is already above average. “As soon as the Bank puts on the
screw, all purchases for foreign exportation immediately cease...
the exporters wait until prices have reached the lowest point of
depression, and then, and not till then, they make their purchases.
But when this point has arrived, the exchanges have been rectified
—gold ceases to be exported before the lowest point of depression
has arrived. Purchases of goods for exportation may have the effect
of bringing back some of the gold which has been sent abroad, but
they come too late to prevent the drain.” (J. W. Gilbart, An In¬
quiry into the Causes of the Pressure on the Money-Market, London,

since it lost within four weeks fully S4l/j million in gold despite this, it
raised the bank-rate to 5%, whereupon gold flowed back to it and the bank-
rate was reduced to 4% in September and then to 3% in October. But
this bank-rate was not recognised in the market. “When the bank-rate
was 5%, the discount rate was 3l/,%, and the rate for money 21/a%; when
the bank-rate fell to 4%, the discount rate was 2s/, % and the money rate
l3/4%; when the bank-rate was 3%, the discount rate fell to l1/, % and
the money rate to something below that.” ( Daily News, January 18,
1894.) — F.E.

544

DIVISION OF PROFIT

1840, p. 35.) — “Another effect of regulating the currency by the for¬
eign exchanges is that it leads in seasons of pressure to an enormous
rate of interest.” ( Loc . cit., p. 40.) — “The cost of rectifying the
exchanges falls upon the productive industry of the country, while
during the process the profits of the Bank of England are actually
augmented in consequence of carrying on her business with a less
amount of treasure.” (Loc. cit., p. 52.)

But, says friend Samuel Gurney, “The great fluctuations in the
rate of interest are advantageous to bankers and dealers in money —
all fluctuations in trade are advantageous to the knowing man.”
And even though the Gurneys skim off the cream by ruthlessly
exploiting the precarious state of business, whereas the Bank of
England cannot do so with the same liberty, nevertheless it also
makes a very pretty profit — not to mention the personal piofits
falling into the laps of its directors, as a result of their exceptional
opportunity for ascertaining the general state of business. Accord¬
ing to data submitted to the Lords’ Committee of 1817 when cash
payments were resumed, these profits accruing to the Bank of
England for the entire period from 1797 to 1817 were as follows:

Bonuses and increased dividends . 7,451,136

New stock divided among proprietors . 7,276,500

Increased value of capital . 14,553,000

Total . 29,280,630

This, on a capital of £11,642,100 over a period of 19 years.
(D. Hardcastle, Banks and Bankers, 2nd ed., London, 1843,
p. 120.) If we estimate the total gain of the Bank of Ireland,
which also suspended cash payments in 1797, by the same method.

we obtain the following result:

Dividends as by returns due 1821 . 4,736,085

Declared bonus . 1,225,000

Increased assets . 1,214,800

Increased value of capital . 4,185,000

Total . 11,300,885

This, on a capital of £3 million. (Ibid., pp. 363-64. *)

Talk about centralisation! The credit system, which has its
focus in the so-called national banks and the big money-lenders
and usurers surrounding them, constitutes enormous centralisa-

* In the German 1894 edition this reads: 163. — Ed.

MEDIUM OF CIRCULATION IN CREDIT

545

tion, and gives to this class of parasites the fabulous power, not
only to periodically despoil industrial capitalists, but also to
interfere in actual production in a most dangerous manner —
and this gang knows nothing about production and has nothing
to do with it. The Acts of 1844 and 1845 are proof of the growing
power of these bandits, who are augmented by financiers and
stock-jobbers.

Should anyone still doubt that these esteemed bandits exploit
the national and world production solely in the interests of pro¬
duction and the exploited themselves, he will surely learn better
from the following homily on the high moral worth of bankers:
“Banking establishments are ... moral and religious institutions....
How often has the fear of being seen by the watchful and reprov¬
ing eye of his banker deterred the young tradesman from joining
the company of riotous and extravagant friends?.... What has
been his anxiety to stand well in the estimation of his banker?...
Has not the frown of his banker been of more influence with him
than the jeers and discouragements of his friends? Has he not
trembled to be supposed guilty of deceit or the slightest mis¬
statement, lest it should give rise to suspicion, and his accom¬
modation be in consequence restricted or discontinued? ... And
has not that friendly advice been of more value to him than that
of priest?” (G. M. Bell, a Scottish bank director, in The Philoso¬
phy of Joint-Stock Banking , London, 1840, pp. 46, 47.)

CHAPTER XXXIV

THE CURRENCY PRINCIPLE
AND THE ENGLISH BANK LEGISLATION OF 1844

[In a former work,13 Ricardo’s theory on the value of money
as related to commodity-prices has been analysed; we can,
therefore, confine ourselves here to the indispensable. According
to Ricardo, the value of metallic money is determined by the
labour-time incorporated in it, but only as long as the quantity
of money stands in correct relationship to the amount and price
of commodities to be exchanged. If the quantity of money rises
above this ratio, its value falls and commodity-prices rise; if it
falls below the correct ratio, its value rises and commodity-
prices fall — assuming all other conditions equal. In the first
case, the country in which this excess gold exists will export
the gold whose value has depreciated and import commodities;
in the second case, gold will flow to those countries in which it
is assessed above its value, while the under-assessed commodities
flow from these countries to other markets, where they command
normal prices. Since under these circumstances “gold itself may
become, either as coin or bullion, a token of metallic value of
greater or smaller magnitude than its own value, it is self-evident
that convertible bank-notes in circulation must share the same
fate. Although bank-notes are convertible, and therefore their
real value corresponds to their nominal value, the aggregate
currency consisting of metal and of convertible notes may appre¬
ciate or depreciate in accordance with its aggregate quantity,
for reasons already stated, rising above or falling below the
level determined by the exchange-value of circulating commod-

13 Karl Marx, Zur Krilik der polilischen Oekonomie, Berlin, 1859, S.
150 ff.

CURRENCY PRINCIPLE AND BANK LEGISLATION OF 1844

547

ities and the metallic value of gold.... This depreciation, not
of paper as compared with gold, but of gold and paper taken
together, or of the aggregate currency of a country, is one of
Ricardo’s principal discoveries which Lord Overstone and Co.
pressed into their service and made a fundamental principle of
Sir Robert Peel’s bank legislation of 1844 and 1845.” ( Loc . cit.,
p. 155.)

We need not here repeat a demonstration of the incorrectness
of this Ricardian theory which is given in the cited work. We are
merely interested in the way Ricardo’s theses were elaborated by
that school of bank theorists who dictated Peel’s above-mentioned
Bank Acts.

“The commercial crises of the 19th century, especially the
great crises of 1825 and 1836, did not result in any new develop¬
ments in the Ricardian theory of money, but they did furnish
new applications for it. These were no longer isolated economic
phenomena, such as the depreciation of precious metals in the
16th and 17th centuries according to Hume, or the depreciation
of paper money in the 18th and early 19th centuries according to
Ricardo; these were instead the violent storms in the world-market
wherein the conflict of. all elements of the capitalist production
process discharges itself, and whose origin and cure were sought
in the most superficial and abstract sphere of this process, the
sphere of money circulation. The actual theoretical assumption
from which the school of economic weather prophets proceeds,
is actually reduced to the dogma that Ricardo discovered the
laws governing the purely metallic currency. The only thing
remaining for them to do was to subordinate credit and bank¬
note circulation to these laws.

“The most general and palpable phenomenon in commercial
crises is the sudden general decline in prices following a pro¬
longed over-all rise. The general decline in commodity-prices may
be expressed as a rise in the relative value of money with respect
to all commodities, and the general price rise as a decline in
the relative value of money. In either expression the phenomenon
is described but not explained.... The different wording leaves
the problem as little changed as would its translation from
German into English. Ricardo’s theory of money was therefore
exceedingly opportune, because it lends to a tautology the sem¬
blance of a statement of causal relationship. Whence comes
the periodic general fall in commodity-prices? From the periodic
rise of the relative value of money. Whence the general periodic
rise in prices? From the periodic decline in the relative value of

548

DIVISION OP PROFIT

money. It might have been stated with equal truth that the
periodic rise and fall of prices is due to their periodic rise and
fall.... Once the tautology is admitted as a causal relationship,
the rest follows easily. A rise in commodity-prices is caused by
a decline in the value of money and a decline in the value of
money is caused, as we know from Ricardo, by an over-supply
of currency, i.e., a rise in the volume of currency over the level
determined by its own intrinsic value and the intrinsic value
of commodities. Similarly, a general decline in commodity-prices
is explained by a rise in the value of money above its intrinsic
value in consequence of under-supply of currency. Thus, prices
rise and fall periodically, because there is periodically too much
or too little money in circulation. Should a price rise happen to
coincide with contracted money circulation, and a fall in prices
with expanded circulation, it may be asserted despite this that
the quantity of money in circulation has, though not absolutely,
yet relatively increased or declined in consequence of a con¬
traction or expansion of the volume of commodities in the market,
even if this cannot be statistically proved. We have seen that
according to Ricardo these general price fluctuations must take
place even with a purely metallic currency, but that they alter¬
natively balance one another; thus, e.g., an under-supply of curren¬
cy causes a fall in prices, the export of commodities abroad, but
this export causes an import of gold from abroad, which in turn
brings about a price rise; the opposite movement taking place
in the case of an over-supply of currency, when commodities
are imported and gold is exported. But, since despite these gen¬
eral price fluctuations which are in perfect accord with Ricardo's
metallic currency, their turbulent and violent form, their crisis
form, belongs to the period of developed credit system, it is
crystal clear that the issue of bank-notes is not exactly regu¬
lated by the laws of metallic currency. Metallic currency has its
remedy in the import and export of precious metal, which imme¬
diately enters circulation as coin and thus, by its inflow or out¬
flow, causes commodity-prices to fall or rise. The same effect on
prices must now be exerted artificially by banks through imitat¬
ing the laws of metallic currency. If gold is coming in from abroad
it proves that currency is in under-supply, that the value of
money is too high and commodity-prices too low, and, conse¬
quently, that bank-notes must be put into circulation in pro¬
portion to the newly imported gold. On the other hand, notes
must be withdrawn from circulation in proportion to the gold
exported from the country. The issue of bank-notes, in other

CURRENCY PRINCIPLE AND BANK LEGISLATION OP 1844

549

words, must be regulated by the import and export of precious
metal or by the rate of exchange. Ricardo’s false assumption
that gold is only coin, and, therefore, all imported gold swells
the currency, causing prices to rise, while all exported gold
reduces the currency, leading to a fall in prices — this theoretical
assumption is here turned into the practical experiment of putting
an amount of coin in circulation equal in every case to the amount
of gold available. Lord Overstone (banker of Jones Loyd), Colonel
Torrens, Norman, Clay, Arbuthnot and a host of other writers,
known in England as advocates of the ‘Currency Principle’,
have not only preached this doctrine, but succeeded in 1844 and
1845 with the aid of Sir Robert Peel’s Bank Acts in making it
the basis of English and Scottish bank legislation. Its igno¬
minious failure, both theoretical as well as practical, following
upon experiments on the broadest national scale, can be treated
only in connection with the theory of credit.” ( Loc . cit., pp.
165-68.)

The critique of this school was furnished by Thomas Tooke,
James Wilson (in the Economist of 1844 to 1847) and John Fullar-
ton. But we have seen on several occasions, particularly in Chapter
XXVIII of this book, how incompletely they, too, saw through
the nature of gold, and how unclear they were about the rela¬
tionship of money and capital. We quote here merely a few in¬
stances in connection with the transactions of the Committee
of the Lower House of 1857 concerning Peel's Bank Acts (B. C.
1857).-f.£.l

J. G. Hubbard, former Governor of the Bank of England,
testifies: “2400. The effect of the export of bullion ... has no
reference whatever to the prices of commodities. It has an effect,
and a very important one, upon the price of intefest-bearing
securities, because, as the rate of interest varies, the value of
commodities which embodied that interest is necessarily power¬
fully affected. ” — He presents two tables covering the years 1834
to 1843, and 1845 to 1853,* which show that the price variations
of fifteen major commercial articles were quite independent of
the export and import of gold and the interest rate. On the other
hand, they show a close connection between the export and
import of gold, which is, indeed, the “representative of our
uninvested capital,” and the interest rate.— “ [2402 1 In 1847,
a very large amount of American securities were retransferred to
America, and Russian securities to Russia, and other continental

* In the German 1894 edition this reads: 1856. — Ed.

550

DIVISION OF PROFIT

securities were transferred to those places from which we drew
our supplies of grain. ”

The fifteen major articles on which the following tables of Hub¬
bard are based include cotton, cotton yarn, cotton fabrics, wool,
woollen cloth, flax, linen, indigo, pig-iron, tin, copper, tallow,
sugar, coffee, and silk.

I. 1834-1843

Bullion
Reserve of
Bank

Market
Rate of
Discount

Of Fifteen Major Articles

Cate

Price

Increase

Price

Decrease

Unchanged

1834, March

£9,104,000

2*/«%

1835, March

6,274,000

3s/, %

1836, March

7,918,000

31/«%

1837, March

4,077,000

1838, March

10,471,000

2’/,%

—

1839, Sept.

2,684,000

1840, June

4,571,000

4s/, %

1840, Dec.

3,642,000

5s/. %

1841, Dec.

4^873,000

—

1842, Dec.

10,603,000

21/ 2%

—

1843, June

11,566,000

21/,%

—

11.

1844-1853

Bullion
Reserve of
Bank

Market
Rate of
Discount

Of Fifteen Major Articles

Date

Price

Increase

Price

Decrease

Unchanged

1844, March

£16,162,000

2*/«%

1845, Dec.

13,237,000

4 V,%

—

1846, Sept.

16,366,000

—

1847, Sept.

9,140,000

1850, March

17,126,000

27 *%

1851, June

13,705,000

1852, Sept.

21,853,000

17«%

1853, Dec.

15,093,000

—

CURRENCY PRINCIPLE AND BANK LEGISLATION OF 1844

551

Hubbard comments in this regard: “As in the 10 years 1834-43,
so in 1844-53, movements in the bullion of the Bank were invari¬
ably accompanied by a decrease or increase in the loanable value
of money advanced on discount; and the variations in the prices
of commodities in this country exhibit an entire independence
of the amount of circulation as shown in the fluctuations in bullion
at the Bank of England ” (Bank Acts Report, 1857, II, pp. 290, 291).

Since the demand and supply of commodities regulate their
market-prices, it becomes evident here how wrong Overstone is
in identifying the demand for loanable money-capital (or rather
the deviations of supply therefrom), as expressed by the discount
rate, with the demand for actual “capital.” The contention that
commodity-prices are regulated by fluctuations in the quantity
of currency is now concealed by the phrase that discount rate
fluctuations express fluctuations in the demand for actual material
capital, as distinct from money-capital. We have seen that before
the same Committee both Norman and Overstone actually con¬
tended this, and that the latter especially was compelled to
resort to very lame subterfuges, until he was finally cornered
(Chap. XXVI). It is indeed an old humbug that changes in the
existing quantity of gold in a particular country must raise or
lower commodity-prices within this country by increasing or
decreasing the quantity of the medium of circulation. If gold
is exported, then, according to this Currency Theory, commodity-
prices must rise in the country importing this gold, and thereby
the value of exports from the gold-exporting country on the
gold-importing country’s market; on the other hand, the value
of the gold-importing country’s exports would fall on the gold¬
exporting country’s market- while it would rise on the domestic
market, i.e., the country receiving the gold. But, in fact, a de¬
crease in the quantity of gold raises only the interest rate, whereas
an increase in the quantity of gold lowers the interest rate; and
if not for the fact that the fluctuations in the interest rate enter
into the determination of cost-prices, or in the determination
of demand and supply, commodity-prices would be wholly
unaffected by them.

In the same report, N. Alexander, head of a large firm doing
business with India, expresses the following views on the heavy
drain of silver to India and China in the mid-fifties. This was
partly due to the Chinese Civil War, which checked the sale of
English fabrics in China, and partly due to the disease among
silkworms in Europe, which sharply reduced silkworm breeding
in Italy and France:

552

DIVISION OF PROFIT

“4337. Is the drain for China or for India? — You send the silver
to India, and you buy opium with a great deal of it, all of which
goes on to China to lay down funds for the purchase of the silk;
and the state of the markets in India (in spite of the accumula¬
tion of silver there) makes it a more profitable investment for the
merchant to lay down silver than to send piece-goods or English
manufactures.” — “4338. In order to obtain the silver, has there
not been a great drain from France?— Yes, very large.” — “434‘4.
Instead of bringing in silk from France and Italy, we are sending
it there in large quantities, both from Bengal and from
China.”

In other words, silver, the money metal of that continent, was
sent to Asia instead of commodities, not because commodity-
prices had risen in the country which produced them (England),
but because prices had fallen, as a result of over-imports in the
country which imported them; and this despite the fact that the
silver was received by England from France and had to be paid
for partly in gold. According to the Currency Theory, prices
should have fallen in England and risen in India and China as
a result of such imports.

Another illustration. Before the Lords’ Committee (C. D.
1848/57), Wylie, one of the first Liverpool merchants, testifies
as follows: — “1994. At the close of 1845 there was no trade that
was more remunerating, and in which there were such large
profits [than cotton spinning]. The stock of cotton was large
and good, useful cotton could be bought at 4d. per pound, and
from such cotton good secunda mule twist No. 40 was made at
an expense not exceeding a like amount, say at a cost of 8d. per
pound in all to the spinner. This yarn was largely sold and con¬
tracted for in September and October 1845 at 10V2 and HV2d.
per pound, and in some instances the spinners realised a profit
equal to the first cost of the cotton.” — “1996. The trade con¬
tinued to be remunerative until the beginning of 1846.” — “2000.
On March 3, 1844, the stock of cotton [627,042 bales] was more
than double what it is this day [on March 3, 1848, when it was
301,070 bales ] and yet the price then was ll/4d. per pound dearer. ”
[6V4d. as against 5d. ]— At the same time yarn, good secunda
mule twist No. 40, had fallen from llV2-12d. to 9V2d. per lb. in
October, and to 73/4d. at the end of December 1847; yarn was
sold at the purchase price of the cotton from which it had been
spun (ibid., Nos. 2021 and 2022). This shows the self-interest of
Overstone’s sagacity according to which money should be “dear”
because capital is “scarce.” On March 3, 1844, the bank interest

CURRENCY PRINCIPLE AND BANK LEGISLATION OF 1844

553

rate stood at 3%; in October and November of 1847 it rose to
8 and 9%, and was still 4% on March 3, 1848. The prices of cotton
were depressed far below the price which corresponded to the
state of supply by the complete stoppage of sales and the panic
with its ensuing high rate of interest. As a result, there was an
enormous decrease in imports in 1848, on the one hand, and,
on the other, a decrease in production in America; hence a new
rise in cotton prices in 1849. According to Overstone, the com¬
modities were too dear because there was too much money in the
country.

“2002. The late decline in the condition of the cotton manu¬
factories is not to be ascribed to tbe want of the raw material, as
the price seems to have been lower, though the stock of the raw
material is very much diminished.” How nicely Overstone con¬
fuses prices, or the value of commodities, with the value of money,
that is, the interest rate. In his reply to Question 2026, Wylie
sums up his general judgement of the Currency Theory, based
on which Cardwell and Sir Charles Wood, in May 1847, “asserted
the necessity of carrying out the Bank Act of 1844 in its full and
entire integrity." — “These principles seemed to me to be of a
nature that would give an artificial high value to money and
an artificial and ruinously low value to all commodities and
produce. He says, furthermore, concerning the effects of this
Bank Act on business in general: “As bills at four months, which
is the regular course of drafts, from manufacturing towns on
merchants and bankers for the purchase of goods going to the
United States, could not be discounted except at great sacrifices,
the execution of orders was checked to a great extent, until after
the Government Letter of October 25 (suspension of the Bank
Act), when those four months’ bills became discountable”
(2097). — We see, then, that the suspension of this Bank Act was
received with relief in the provinces as well. — “2102. Last Octo¬
ber [1847] there was scarcely an American buyer purchasing
goods here who did not at once curtail his orders as much as he
possibly could; and when our advices of the dearness of money
reached America, all fresh orders ceased.” — “2134. Corn and
sugar were special. The corn market was affected by the prospects
of the harvest, and sugar was affected by the immense stocks
and imports.” — “2163. Of our indebtedness to America ... much
was liquidated by forced sales of consigned goods, and I fear that
much was cancelled by the failures here.” — “2196. If I recollect
rightly, 70 per cent was paid on our Stock Exchange in October
1847. ”

554

DIVISION OF PROFIT

[The crisis of 1837 with its protracted aftermath, followed in
1842 by a regular post-crisis, and the self-interested blindness
of industrialists and merchants, who absolutely refused to see
any over-production — for such a thing was absurd and impossible
according to vulgar economy— had ultimately achieved that
confusion of thought which enabled the Currency School to put
its dogma into practice on a national scale. The bank legislation
of 1844 and 1845 was passed.

The Bank Act of 1844 divides the Bank of England into an
issue department and a banking department. The former receives
securities— principally government obligations— amounting to
14 million, and the entire metal hoard, of which not more than
one-quarter is to consist of silver, and issues notes to the full
amount of the total. In so far as these notes are not in the hands
of the public, they are held in the banking department and,
together with the small amount of coin required for daily use
(about one million), constitute its ever ready reserve. The issue
department gives the public gold for notes and notes for gold;
the remaining transactions with the public are carried on by the
banking department. Private banks in England and Wales author¬
ised in 1844 to issue their own notes retained this privilege,
but their note issue was fixed; if one of these banks ceases to issue
its own notes, the Bank of England can increase its unbacked
notes by two-thirds of the quota thus made available; in this
way its issue was increased by 1892 from £14 to £16Va million
(to be exact, £16,450,000).

Thus, for every five pounds in gold which leave the bank
treasury, a five-pound note returns to the issue department and
is destroyed; for every five sovereigns going into the treasury
a new five-pound note comes into circulation. In this manner,
Overstone’s ideal paper circulation, which strictly follows the
laws of metallic circulation, is carried out in practice, and by
this means, according to the advocates of the Currency Theory,
crises are made impossible for all time.

But in reality the separation of the Bank into two independent
departments deprived its management of the possibility of freely
utilising its entire available means at critical times, so that
situations could arise in which the banking department might
be on the verge of bankruptcy while the issue department still
had intact several millions in gold and, in addition, its entire
14 million in securities. And this could take place so much more
easily since there is a period in almost every crisis when heavy
exports of gold take place which must be covered in the main by

CURRENCY PRINCIPLE AND RANK LEGISLATION OP 1844

555

the metal reserve of the bank. But for every five pounds in gold
which then go abroad, the domestic circulation is deprived of
a five-pound note, so that the quantity of circulating medium
is reduced precisely at a time when the largest quantity is most
needed. The Bank Act of 1844 thus directly induces the entire
commercial world forthwith to hoard a reserve fund of bank¬
notes at the outbreak of a crisis; in other words, to accelerate ai d
intensify the crisis. By such artificial intensification of demand
for money accommodation, that is, for means of payment at the
decisive moment, and the simultaneous restriction of the supply
the Bank Act drives the rate of interest to a hitherto unknown
height during a crisis. Hence, instead of eliminating crises, the
Act, on the contrary, intensifies them to a point where either
the entire industrial world must go to pieces, or else the Bank
Act. Both on October 25, 1847, and on November 12, 1857, the
crisis reached such a point; the government then lifted the restric¬
tion for the Bank in issuing notes by suspending the Act of 1844,
and this sufficed in both cases to overcome the crisis. In 1847,
the assurance that bank-notes would again be issued for first-
class securities sufficed to bring to light the £4 to £5 million of
hoarded notes and put them back into circulation; in 1857, the
issue of notes exceeding the legal amount reached almost one
million, but this lasted only for a very short time.

It should also be mentioned that the 1844 legislation still shows
traces recalling the first twenty years of the 19th century, the
period when specie payments were suspended and notes devaluat¬
ed. The fear that notes may lose their credit is still plainly in
evidence. But this fear is quite groundless, since even in 1825
the issue of a discovered old supply of one-pound notes, which
had been taken out of circulation, broke the crisis and proved
thereby that the credit of the notes remained unshaken even in
times of the most general and deepest mistrust. And this is quite
understandable; for, after all, the entire natioD backs up these
symbols of value with its credit. — F.E.]

Let us now turn to a few comments on the effect of the Bank
Act. John Stuart Mill believes that the Bank Act of 1844* kept
down over-speculation. Happily this sage spoke on June 12,
1857. Four months later the crisis broke out. He literally con¬
gratulated the “bank directors and the commercial public gen¬
erally” on the fact that they “understand much better than they
did the nature of a commercial crisis, and the extreme mischief

* In the German 1894 edition this reads: 1847 . — Ed,

556

DIVISION OF PROFIT

which they do both to themselves and to the public by uphold¬
ing over-speculation.” (B. C. 1857, No. 2031.)

The sagacious Mr. Mill thinks that if one-pound notes are
issued “as advances to manufacturers and others, who pay wages
... the notes may get into the hands of others who expend them
for consumption, and in that case the notes do constitute in
themselves a demand for commodities and may for some time
tend to promote a rise of prices” [2066]. Does Mr. Mill assume,
then, that manufacturers will pay higher wages because they pay
them in paper instead of gold? Or does he believe that if a manu¬
facturer receives his loan in £100 notes and exchanges them
for gold, these wages would constitute less demand than if
paid immediately in one-pound notes? And does he not know
that, for instance, in certain mining districts wages were paid
in the notes of local banks, so that several labourers together
received one five-pound note? Does this increase their demand?
Or will bankers advance money to manufacturers more
easily and in larger quantities in small notes than in large
ones?

[This singular fear which Mill has for one-pound notes would
be inexplicable if his whole work on political economy did not
reveal an eclecticism which shows no hesitation in the face of
any contradiction. On the one hand, he agrees on many points
with Tooke as opposed to Overstone; on the other, he believes
that commodity-prices are determined by the quantity of available
money. He is thus by no means convinced that, all other condi¬
tions being equal, a sovereign will find its way into the coffers
of the Bank for every one-pound note issued. He fears that the
quantity of circulating medium could be increased and thereby
devaluated, that is, commodity-prices might rise. This and noth¬
ing more is concealed behind the above-mentioned apprehension. —
F.E. ]

Tooke expresses the following views before the C. D. 1848/57
concerning the division of the Bank into two departments and
the excessive precautions taken to safeguard the cashing of notes:

The greater fluctuations of the interest rate in 1847, as com¬
pared with 1837 and 1839, are due solely to the separation of the
Bank into two departments (3010). — The safety of bank-notes
was affected neither in 1825 nor in 1837 and 1839 (3015). — The
demand for gold in 1825 was aimed only at filling the vacuum
created by the complete discredit of the one-pound notes of coun¬
try banks; this vacuum could be filled only by gold, until such
time as the Bank of England also issued one-pound notes (3022). —

CURRENCY PRINCIPLE AND BANK LEGISLATION OF 1844

557

In November and December 1825 not the slightest demand
existed for gold for export purposes (3023).

“In point of discredit at home as well as abroad, a failure
in paying the dividends and the deposits would be of far greater
consequence than the suspending of the payment of the bank¬
notes (3028).”

“3035. Would you not say that any circumstance, which had
the effect of ultimately endangering the convertibility of the
note, would be one likely to add serious difficulty in a moment
of commercial pressure? — Not at all.”

“In the course of 1847 ... an increased issue from the circulat¬
ing department might have contributed to replenish the coffers
of the Bank, as it did in 1825” (3058).

Before the Committee on B. A. 1857, Newmarch testifies:
“1357. The first mischievous effect ... of that separation of depart¬
ments (of the Bank) and ... a necessary consequence from the
cutting in two of the reserve of bullion has been that the banking
business of the Bank of England, that is to say, the whole of
that part of the operation of the Bank of England which brings
it more immediately into contact with the commerce of the coun¬
try, has been carried on upon a moiety only of its former amounts
of reserve. Out of that division of the reserve has arisen, there¬
fore, this state of things, that whenever the reserve of the banking
department has been diminished, even to a small extent, it has
rend Ted necessary an action by the Bank upon its rate of discount.
That diminished reserve, therefore, has produced a frequent
succession of changes and jerks in the rate of discount.” — “1358.
The alterations since 1844” [until June 1857] “have been some
60 in number, whereas the alterations prior to 1844 in the same
space of time certainly did not amount to a dozen.”

Of special interest is the testimony of Palmer, a Director of
the Bank of England since 1811 and for a while its Governor,
before the Lords' Committee on C. D. 1848/57:

“828. In December 1825, there was about £1,100,000 of bullion
remaining in the Bank. At that period it must undoubtedly
have failed in toto, if this Act had been in existence [meaning
the Act of 1844], The issue in December, I think, was 5 or 6 mil¬
lions of notes in a week, which relieved the panic that existed at
that period.”

“825. The first period [since July 1, 1825] when the present Act
would have failed, if the Bank had attempted to carry out the
transactions then undertaken, was on the 28th of February 1837;
at that period there were £3,900,000 to £4,000,000 of bullion in

558

DIVISION OF PROFIT

the possession of the Bank, and then the Bank would have been
left with £650,000 only in the reserve. Another period is in the
year 1839, which continued from the 9th of July to the 5th of
December.” — “826. What was the amount of the reserve in
that case? — The reserve was minus altogether £200,000 upon the
5th of September. On the 5th of November it rose to about a
million or a million and a half.” — “830. The Act of 1844 would
have prevented the Bank giving assistance to the American trade
in 1837 ” — “831. There were three of the principal American
houses that failed. ... Almost every house connected with America
was in a state of discredit, and unless the Bank had come forward
at that period, I do not believe that there would have been more
than one or two houses that could have sustained themselves.” —
“836. The pressure in 1837 is not to be compared with that of
1847. The pressure in the former year was chiefly confined to the
American trade.”— 838. (Early in June 1837 the management of
the Bank discussed the question of overcoming the pressure.)
“Some gentlemen advocated the opinion ... that the correct
principle was to raise the rate of interest, by which the price of
commodities would be lowered; in short, to make money dear
and commodities cheap, by which the foreign payment would
be accomplished. ”—“906. The establishment of an artificial
limitation of the powers of the Bank under the Act of 1844,
instead of the ancient and natural limitation of the Bank ’s powers,
namely, the actual amount of its specie, tends to create artificial
difficulty, and therefore an operation upon the prices of merchan¬
dise that would have been unnecessary but for the provisions
of the Act.” — “968. You cannot, by the working of the Act of
1844, materially reduce the bullion, under ordinary circumstances,
below nine million and a half. It would then cause a pressure
upon prices and credit which would occasion such an advance
in the exchange with foreign countries as to increase the import
of bullion, and to that extent add to the amount in the issue
department.” — “996. Under the limitation that you [the Bank]
are now subject to, you have not the command of silver to an
extent that you require at a time when silver would be required
for an action upon the foreign exchanges.” — “999. What was the
object of the regulation restricting the Bank as to the amount of
silver to one-fifth?— I cannot answer that question.”

The purpose was to make money dear; aside from the Currency
Theory, the separation of the two bank departments and the
requirement for Scottish and Irish banks to hold gold in reserve
for backing notes issued beyond a certain amount had the same

CURRENCY PRINCIPLE AND BANK LEGISLATION OF 1844 559

purpose. This brought about a decentralisation of the national
metal reserve, which decreased its capability of correcting un¬
favourable exchange rates. All the following stipulations aim to
raise the interest rate: that the Bank of England shall not issue
notes exceeding 14 million except against gold reserve; that the
banking department shall be administered as an ordinary bank,
forcing the interest rate down when money is plentiful and driv¬
ing it up when money is scarce; limiting the silver reserve, the
principal means of rectifying the rates of exchange with the
continent and Asia; the regulations concerning the Scottish and
Irish banks, which never require gold for export but must now
keep it under the pretence of ensuring an actually illusory con¬
vertibility of their notes. The fact is that the Act of 1844 caused
a run on the Scottish banks for gold in 1857 for the first time.
Nor does the new bank legislation make any distinction between
a drain of gold abroad or for domestic purposes, although it goes
without saying that their effects are quite different. Hence the
continual large fluctuations in the market rate of interest. With
reference to silver, Palmer says on two separate occasions, 992
and 994, that the Bank can buy silver for notes only when the
rate of exchange is favourable for England, i.e., silver is super¬
fluous; for: “1003. The only object in holding a considerable
amount of bullion in silver is to facilitate making the foreign
payment so long as the exchanges are against the country.” —
“1004. Silver is ... a commodity which, being money in every
other part of the world, is therefore the most direct commodity
... for the purpose” [payments abroad]. “The United States
latterly have taken gold alone.”

In his opinion, the Bank did not have to raise the interest
rate above its old level of 5% in times of stringency, so long as
unfavourable exchange rates do not drain gold to foreign coun¬
tries. Were it not for the Act of 1844, the Bank would be able to
discount all first-class bills presented to it without difficulty.
[1018-20. ] But under the Act of 1844 and in the state in which
the Bank found itself in October 1847, “there was no rate of
interest which the Bank could have charged to houses of credit,
which they would not have been willing to pay to carry on their
payments” [1022]. And this high interest rate was precisely the
purpose of the Act.

“1029. ... Great distinction which I wish to draw between the
action of the rate of interest upon a foreign demand [for precious
metal ] and an advance in the rate for the object of checking a
demand upon the Bank during a period of internal discredit.” —

560

DIVISION OF PROFIT

“1023. Previously to the Act of 1844 ... when the exchanges
were in favour of the country, and positive panic and alarm
existed through the country, there was no limit put upon the
issue, by which alone that state of distress could be relieved.”

So speaks a man who has occupied a post for 39 years in the
administration of the Bank of England. Let us now listen to
a private banker, Twells, an associate of Spooner, Attwood
& Co. since 1801. He is alone among the witnesses before the
B. C. 1857 who provides us with an insight into the country’s
actual state of affairs and who sees the crisis approaching. In
other respects, however, he is a sort of little-shilling man from
Birmingham, like his associates, the Attwood brothers, who
are the founders of this school. (See Zur Kritik der pol. Oek.,
S. 59.) He testifies: “4488. How do you think that the Act of
1844 has operated?— If I were to answer you as a banker, I should
say that it has operated exceedingly well, for it has afforded a
rich harvest to bankers and [money- Jcapitalists of all kinds.
But it has operated very badly to the honest industrious trades¬
man who requires steadiness in the rate of discount, that he may
be enabled to make his arrangements with confidence.... It has
made money-lending a most profitable pursuit.” — “4489. It
[the Bank Act] enables the London joint-stock banks to return
from 20 to 22% to their proprietors? —The other day one of them
was paying 18% and I think another 20%; they ought to support
the Act of 1844 very strongly. ” — “4490. The little tradesmen and
respectable merchants, who have not a large capital ... it pinches
them very much indeed.... The only means that I have of know¬
ing is that I observe such an amazing quantity of their accept¬
ances unpaid. They are always small, perhaps ranging from
£20 to £100, a great many of them are unpaid and go back unpaid
to all parts of the country, which is always an indication of
suffering amongst ... little shopkeepers.” — 4494. He declares
that business is not profitable now. The following remarks of
his are important because they show that he saw the latent exist¬
ence of the crisis when none of the others had even an inkling
of it.

“4494. Things keep their prices in Mincing Lane, but we sell
nothing, we cannot sell upon any terms; we keep the nominal
price.” — 4495. He relates the following case: A Frenchman sends
a broker in Mincing Lane commodities for £3,000 to be sold
at a certain price. The broker cannot obtain the requested price,
and the Frenchman cannot sell below this price. The commodi¬
ties remain unsold, but the Frenchman needs money. The broker

CURRENCY PRINCIPLE AND BANK LEGISLATION OF 1S44

561

therefore makes him an advance of £1,000 and has the Frenchman
draw a bill of exchange of £1,000 for three months on the broker
against his commodities as security. At the end of the three
months the bill becomes due, but the commodities still remain
unsold. The broker must then pay the bill, and although he
possesses security for £3,000, he cannot convert it into cash and
as a result faces difficulties. In this manner, one person drags
another down with him. — “4496. With regard to the large
exports ... where there is a depressed state of trade at home, it
necessarily forces large exportation. ”—“4497. Do you think
that the home consumption has been diminished? — Very much
indeed ... immensely ... the shopkeepers are the best authori¬
ties.” — “4498. Still the importations are very large; does not
that indicate a large consumption? — It does, if you can sell;
but many of the warehouses are full of these things; in this very
instance which I have been relating, there is £3,000 worth
imported, which cannot be sold.”

“4514. When money is dear, would you say that capital would
be cheap?— Yes.”—' This man, then, is by no means of Over¬
stone’s opinion that a high rate of interest is the same as dear
capital.

The following shows how business is now conducted: “4616.
Others are going to a very great extent, carrying on a prodigious
trade in exports and imports, to an extent far beyond what their
capital justifies them in doing; there can be no doubt of all of
that. These men may succeed; they may by some lucky venture
get large fortunes, and put themselves right. That is very much
the system in which a great deal of trade is now carried on. Per¬
sons will consent to lose 20, 30, and 40 per cent upon a shipment;
the next venture may bring it back to them. If they fail in one
after another, then they are broken up; and that is just the case
which we have often seen recently; mercantile houses have broken
up, without one shilling of property being left.”

“4791. The low rate of interest [during the last ten years]
operates against bankers, it is true, but I should have very great
difficulty in explaining to you, unless I could show you the
books, how much higher the profits [his own] are now than
they used to be formerly. When interest is low, from excessive
issues, we have large deposits; when interest is high, we get the
advantage in that way.” — “4794. When money is at a moderate
rate, we have more demand for it; we lend more; it operates in
that way [for us* the bankers]. When it gets higher, we get more
than a fair proportion for it; we get more than we ought to do.”

562

DIVISION OF PROFIT

We have seen that the credit of Bank of England notes is con¬
sidered beyond question by all experts. Nevertheless, the Bank
Act completely ties up nine to ten million in gold for the convert¬
ibility of these notes. The sacredness and inviolability of this
reserve is thereby carried much farther than among hoarders of
olden times. Mr. Brown (Liverpool) testifies, C. D. 1847/57:
“2311: This money [the metal reserve in the issue department]
might as well have been thrown into the sea from any use that it
was of at that time, there being no power to employ any of it
without violating the Act of Parliament.”

The building contractor E. Capps, already cited earlier, whose
testimony is also used to illustrate the modern building system
in London (Book II, Chap. XII’1'), sums up his opinion of the
Bank Act of 1844 as follows [B. A. 1857]: “5508. Then upon the
whole ... you think that the present system [of bank legislation]
is a somewhat adroit scheme for bringing the profits of industry
periodically into the usurer’s bag? — 1 think so. I know that it
has operated so in the building trade.”

As mentioned before, the Scottish banks were forced by the
Bank Act of 1845 into a system resembling that of the English.
They were obliged to hold gold in reserve for their note issue
beyond the limit fixed for each bank. The effect of this may be
seen from the following testimony before the C. D. 1848/57.

Kennedy, Director of a Scottish bank: “3375. Was there any¬
thing that you can call a circulation of gold in Scotland previously
to the passing of the Act of 1845?— None whatever.” — “3376.
Has there been any additional circulation of gold since?— None
whatever; the people dislike gold.”— 3450. The sum of about
£900,000 in gold, which the Scottish banks are compelled to
keep since 1845, can only be injurious in his opinion and “absorbs
unprofitably so much of the capital of Scotland.”

Furthermore, Anderson, Director of the Union Bank of Scot¬
land: “3588. The only pressure upon the Bank of England by
the banks in Scotland for gold was for foreign exchanges? — It
was; and that is not to be relieved by holding gold in Edin¬
burgh.” — “3590. Having the same amount of securities in the
Bank of England” [or in the private banks of England] “we
have the same power that we had before of making a drain upon
the Bank of England.”

Finally, we quote an article from the Economist (Wilson):
“The Scotch banks keep unemployed amounts of cash with their

* English edition: Vol. fl, pp. 233-34.— Ed.

CURRENCY PRINCIPLE AND BANK LEGISLATION OF 1844

563

London agents; these keep them in the Bank of England. This
gives to the Scotch banks, within the limits of these amounts,
command over the metal reserve of the Bank, and here it is always
in the place where it is needed, when foreign payments are to
be made. ’’—This system was disturbed by the Act of 1845: In
consequence of the Act of 1845 for Scotland “of late a large drain
of the coin of the Bank has taken place, to supply a mere contin¬
gent demand in Scotland, which may never occur.... Since that
period there has been a large sum uniformly Locked up in Scotland,
and another considerable sum constantly travelling back and
forward between London and Scotland. If a period arrives when
a Scotch bank expects an increased demand for its notes, a box
of gold is brought down from London; when this period is past,
the same box, generally unopened, is sent back to London.”
(. Economist , October 23, 1847 [pp. 1214-1215].)

[And what does the father of the Bank Act, banker Samuel
Jones Loyd, alias Lord Overstone, say to all this?

Already in 1848 he repeated before the Lords’ Committee on
Commercial Distress that “pressure, and a high rate of interest
caused by the want of sufficient capital, cannot be relieved by
an extra issue of bank-notes” (1514), in spite of the fact that
the mere authority to increase the note issue, given by the Govern¬
ment 's Letter of October 25, 1847, had sufficed to take the edge
off the crisis.

He holds to the view that “the high rate of interest and the
depression of the manufacturing interests was the necessary
result of the diminution of the material capital applicable to
manufacturing and trading purposes” (1604). And yet the de¬
pressed condition of the manufacturing industry had for months
consisted in material commodity-capital filling the warehouses
to overflowing and being actually unsaleable; so that for precise¬
ly this reason, material productive capital lay wholly or partly
idle, in order not to produce still more unsaleable commodity-
capital.

And before the Bank Committee of 1857 he says: “By strict
and prompt adherence to the principles of the Act of 1844, every¬
thing has passed off with regularity and ease, the monetary system
is safe and unshaken, the prosperity of the country is undisputed,
the public confidence in the wisdom of the Act of 1844 is daily
gaining strength, and if the Committee wish for further practical
illustration of the soundness of the principles on which it rests,
or of the beneficial results which it has ensured, the true and
sufficient answer to the Committee is, look around you, look at

564 DIVISION OF PROFIT

the present state of the trade of this country, ... look at the
contentment of the people, look at the wealth and prosperity
which pervades every class of the community, and then having
done so, the Committee may be fairly called upon to decide
whether they will interfere with the continuance of an Act under
which those results have been developed.” (B. C. 1857, No.
4189.)

To this song of praise by Overstone before the Committee on
July 14, the antistrophe was given on November 12 of the same
year in the shape of a letter to the Bank’s management, in which
the government suspended the miracle-working law of 1844 to
save what could still be saved.— F. E. ]

CHAPTER XXXV

PRECIOUS METAL AND RATE OF EXCHANGE

I. MOVEMENT OF THE GOLD RESERVE

It should be noted in regard to the accumulation of notes in
times of stringency, that it is a repetition of the hoarding of
precious metal as used to take place in troubled times in the
most primitive conditions of society. The Act of 1844 is interest¬
ing in its operation because it seeks to transform all precious
metal existing in the country into a circulating medium; it seeks
to equate a drain of gold with a contraction of the circulating
medium and a return flow of gold with an expansion of the cir¬
culating medium. As a result, the experiment proved the contrary
to be the case. With a single exception, which we shall mention
shortly, the quantity of circulating notes of the Bank of England
has never, since 1844, reached the maximum which it was author¬
ised to issue. The crisis of 1857 proved on the other hand that
this maximum does not suffice under certain circumstances.
From November 13 to 30, 1857, a daily average of £488,830
above this maximum was circulating (B. A. 1858, p. XI). The
legal maximum was at that time £14,475,000, plus the amount
of metal reserve in the vaults of the Bank.

Concerning the outflow and inflow of precious metal, the
following is to be noted:

First, a distinction should be made between the back and
forth movement of metal within a region which does not produce
any gold and silver, on the one hand, and, on the other, the flow
of gold and silver from their sources of production to various
other countries and the distribution of this additional metal
among them.

Before the gold mines of Russia, California and Australia
made their influence felt, the supply since the beginning of the
19th century sufficed only for the replacement of worn-out coins,
for general use in articles of luxury, and for the export of silver
to Asia.

19—2494

cfifi DIVISION OF PROFIT

However, in the first place, silver exports to Asia have since
increased extraordinarily, owing to the Asiatic trade of America
and Europe. The silver exported from Europe was largely re¬
placed by the additional supply of gold. Secondly, a portion of the
pewly imported gold was absorbed by internal money circulation.
It is estimated that up to 1857 about 30 million in gold were
added to England's internal circulation.14 Furthermore, the
average level of metal reserves in all the central banks of Europe
and America increased since 1844. The expansion of domestic
money circulation resulted at the same time in bank reserves
growing more rapidly in the period of stagnation following upon
the panic, because of the larger quantity of gold coins thrust
out of domestic circulation and immobilised. Finally, the con¬
sumption of precious metal for luxury articles increased since
the discovery of new gold deposits as a consequence of the
increased wealth.

Secondly, precious metal flows back and forth between countries
which do not produce any gold or silver, the same country con¬
tinually importing, and also exporting. It is only the prepon¬
derance of this movement in one or another direction which, in
the final analysis, determines whether a drain or an augmenta¬
tion has taken place, since the mere oscillations and frequently
parallel movements largely neutralise one another. But for this
reason, in so far as the result is concerned, the continuity and,
in the main, the parallel course of both movements is overlooked.
A greater import or a greater export of precious metal is always
interpreted to be solely the effect and expression of the relation
between the imports and exports of commodities, whereas it is

14 The effect this had on the money-market is indicated by the following
testimony of Newmarch: “1509. At the close of 1853, there was a considerable
apprehension in the public mind, and in September of that year the Bank
of England raised its discount on three occasions.... In the early part of
October there was a considerable degree of apprehension and alarm in the
public mind. That apprehension and alarm was relieved to a very great ex¬
tent before the end of November, and was almost wholly removed, in con¬
sequence of the arrival of nearly £5,000,000 of treasure from Australia....
The same thing happened in the autumn of 1854, by the arrival in the months
of October and November of nearly £6,000,000 of treasure. The same thing
happened again in the autumn of 1855, which we know was a period of excite¬
ment and alarm, by the arrivals, in the three months of September, Octo¬
ber and November, of nearly £8,000,000 of treasure; and then at the close
of last year, 1856, we find exactly the same occurrence. In truth, 1 might
appeal to the observation almost of any member of the Committee, whether
the natural and complete solvent to which we have got into the habit of
looking for any financial pressure, is not tbe arrival of a gold ship” IB. A.
1857],

PRECIOUS METAL AND RATE OF EXCHANGE

567

simultaneously indicative of the relation between exports and
imports of precious metal itself, quitei independent of commodity
trade.

Thirdly, the preponderance of imports over exports, and vice
versa, is measured on the whole by the increase or decrease in
metal reserves of the central banks. The greater or lesser preci¬
sion of this criterion naturally depends primarily on the degree
of centralisation of the banking business in general. For on this
depends the extent that precious metal in general accumulated
in the so-called national banks represents the national metal
reserve. But assuming this to be the case, the criterion is not
accurate because an additional import may be absorbed under
certain circumstances by domestic circulation and the growing
consumption of gold and silver in producing luxury articles;
furthermore, because without additional import, a withdrawal
of gold coin for domestic circulation could take place, and thus
the metal reserve could decrease even without a simultaneous
increase in exports.

Fourthly, an export of metal assumes the aspect of a drain
when the movement of decrease continues for a long time, so that
the decrease represents a tendency of movement and depresses
the metal reserve of the bank considerably below its average
level, down to approximately its average minimum. This mini¬
mum is more or less arbitrarily fixed, in so far as it is differently
determined in every individual case by legislation concerning
backing for the cashing of notes, etc. Concerning the quantita¬
tive limits which such a drain can reach in England, Newmarch
testified before the Committee on B. A. 1857, Evidence No. 1494:
“Judging from experience, it is very unlikely that the efflux
of treasure arising from any oscillation in the foreign trade will
proceed beyond £3,000,000 or £4,000,000.” — In 1847, the lowest
gold reserve level of the Bank of England, occurring on October
23, showed a decrease of £5,198,156 as compared with that of
December 26, 1846, and a decrease of £6,453,748 as compared
with the highest level of 1846 (August 29).

Fifthly, the determination of the metal reserve of the so-called
national banks, a determination, however, which does not by
itself regulate the magnitude of this metal hoard, for it can grow
solely by the paralysis of domestic and foreign trade, is three¬
fold: 1) reserve fund for international payments, in other words,
reserve fund of world-money; 2) reserve fund for alternately
expanding and contracting domestic metal circulation; 3) reserve
■fund for the payment of deposits and for the convertibility of

19*

568

DIVISION OF PROFIT

notes (this is connected with the function of the bank and has
nothing to do with the functions of money as such). The reserve
fund can, therefore, also be influenced by conditions which
affect every one of these three functions. Thus, as an international
fund it can be influenced by the balance of payments, no matter
by what factors the latter may be determined and whatever its
relation to the balance of trade may be. As a reserve fund for
domestic metal circulation it can be influenced by the latter’s
expansion or contraction. The third function— that of a security
fund— does not, admittedly, determine the independent move¬
ment of the metal reserve, but has a two fold effect. If notes are
issued which replace metallic money (also including silver coins
in countries where silver is a measure of value) in domestic cir¬
culation, the function of the reserve fund under 2) drops away.
And a portion of the precious metal, which served to perform
this function, will for a long time find its way abroad. In this
case metallic coins are not withdrawn for domestic circulation,
and thus the temporary augmentation of the metal reserve by
immobilising a part of the circulating coined metal simultaneously
falls away. Furthermore, if a minimum metal reserve must be
maintained under all circumstances for the payment of deposits
and for the convertibility of notes, this affects in its own way
the results of a drain or return flow of gold; it affects that part of
the reserve which the bank is obliged to maintain under all
circumstances, or that part which it seeks to get rid of as useless
at certain times. If the circulation were purely metallic and the
banking system concentrated, the bank would likewise have to
consider its metal reserve as security for the payment of its
deposits, and a drain of metal could cause a panic such as was
witnessed in Hamburg in 1857.

Sixthly , with the exception of perhaps 1837, the real crisis
always broke out only after a change in the rates of exchange,
that is, as soon as the import of precious metal had again gained
preponderance over its export.

In 1825, the real crash came after the drain on gold had ceased.
In 1839, there was a drain on gold, but it did not bring about a
crash. In 1847, the drain on gold ceased in April and the crash
came in October. In 1857, the drain on gold to foreign countries
had ceased in early November, and the crash did not come until
later that same month.

This is particularly evident in the crisis of 1847, when the drain
on gold ceased in April after causing a slight preliminary crisis,
and the real- business crisis did not come until October.

PRECIOUS METAL AND RATE OF EXCHANGE

569

The following testimony was presented at the Secret Committee
of the House of Lords on Commercial Distress, 1848. This evidence
was not printed until 1857 (also cited as C. D. 1848/57).

Evidence of Tooke: In April 1847, a stringency arose, which,
strictly speaking, equalled a panic, but was of relatively short
duration and not accompanied by any commercial failures of
importance. In October the stringency was far more intensive
than at any time during April, an almost unheard-of number
of commercial failures taking place (2996). — In April the rates
of exchange, particularly with America, compelled us to export
a considerable amount of gold in payment for unusually large
imports; only by an extreme eSort did the Bank stop the drain and
drive the rates higher (2997). — In October the rates of exchange
favoured England (2998). — The change in the rates of exchange
had begun in the third week of April (3000). — They fluctuated in
July and August; since the beginning of August they always
favoured England (3001).— The drain on gold in August arose
from a demand for internal circulation [3003].

J. Morris, Governor of the Bank of England: Although the rate
of exchange favoured England since August 1847, and an import
of gold had taken place in consequence, the bullion reserve of
the Bank decreased. “£2,200,000 went out into the country in
consequence of the internal demand” (137). — This is explained
on the one hand by an increased employment of labourers in
railway construction, and on the other by the “circumstance of
the bankers wishing to provide themselves with gold in times of
distress” (147).

Palmer, ex-Governor and a Director of the Bank of England
since 1811: “684. During the whole period from the middle of
April 1847 to the day of withdrawing the restrictive clause in
the Act of 1844 the foreign exchanges were in favour of this
country. ”

The drain of bullion, which created an independent money
panic in April 1847 was here therefore, as always, but a precursor
of the crisis, and a turn had already taken place before it broke
out. In 1839, a heavy drain of bullion took place for grain, etc.,
while business was strongly depressed, but there was no crisis or
money panic.

Seventhly, as soon as .general crises have spent themselves,
gold and silver — leaving aside the inflow of new precious metal
from the producing countries — distribute themselves once more
in the proportions in which they existed in a state of equilibrium
as individual hoards of the various countries. Othen conditions

570

DIVISION OF PROFIT

being equal, the relative magnitude of a hoard in each country
will be determined by the role of that country in the world-market.
They flow from the country which had more than its normal
share to those with less than a normal amount. These movements
of outgoing and incoming metal merely restore the original
distribution among the various national reserves. This redistri¬
bution, however, is brought about by the effects of various cir¬
cumstances, which will be taken up in our treatment of rates
of exchange. As soon as the normal distribution is once more
restored — beginning with this moment — a stage of growth sets in
and then again a drain. [This last statement applies, of course,
only to England, as the centre of the world money-market. —
F. EA

Eighthly, a drain of metal is generally the symptom of a change
in the state of foreign trade, and this change in turn is a pre¬
monition that conditions are again approaching a crisis.15

Ninthly, the balance of payments can favour Asia against
Europe and America.1®

An import of precious metal takes place mainly during two
periods. On the one hand, it takes place in the first phase of a
low interest rate, which follows upon a crisis and reflects a restric¬
tion of production; and then in the second phase, when the interest
rate rises, but before it attains its average level. This is the
phase during which returns come quickly, commercial credit is
abundant, and therefore the demand for loan capital does not
grow in proportion to the expansion of production. In both phases,
with loan capital relatively abundant, the superfluous addition
of capital existing in the form of gold and silver, i.e., a form in
which it can primarily serve only as loan capital, must seriously

18 According to Newmarch, a drain of gold to foreign countries can arise
from three causes: 1) from purely commercial conditions, that is, if imports
have exceeded exports, as was the case in 1836 to 1844, and again in 1847—
principally a heavy import of grain; 2) in order to secure the means for in¬
vesting English capital in foreign countries, as in 1857 for railways in India,
and 3) for definite expenditures abroad, as in 1853 and 1854 for war pur¬
poses in the Orient.

18 1918. Newmarch. “When you combine India and China, when you
bring into account the transactions between India and Australia, and the
still more important transactions between China and the United States, the
trade. being a triangular one, and the adjustment, taking place through us...
then it is true that the balance of trade was not merely against this country,
but against France, and against the United States.”— (B. A. 1857.)

PRECIOUS METAL AND RATE OP EXCHANGE

571

affect the rate of interest and concomitantly the atmosphere of
business in general.

On the other hand, a drain, a continued and heavy export of
precious metal, takes place as soon as returns no longer Dow,
markets are overstocked, and an illusory prosperity is maintained
only by means of credit; in other words, as soon as a greatly
increased demand for loan capital exists and the interest rate,
therefore, has reached at least its average level. Under such
circumstances, which are reQected precisely in a drain of precious
metal, the effect of continued withdrawal of capital, in a form in
which it exists directly as loanable money-capital, is considerably
intensified. This must have a direct influence on the interest
rate. But instead of restricting credit transactions, the rise in
interest rate extends them and leads to an over-straining of all
their resources. This period, therefore, precedes the crash.

Newmarch is asked, B. A. 1857: “1520. But then the volume
of bills in circulation increases with the rate of discount? — It
seems to do so.” — “1522. In quiet ordinary times the ledger is
the real instrument of exchange; but when any difficulty arises;
when, for example, under such circumstances as I have suggested,
there is a rise in the bank-rate of discount ... then the transactions
naturally resolve themselves into drawing bills of exchange,
those bills of exchange being not only more convenient as regards
legal proof of the transaction which has taken place, but also
being more convenient in order to effect purchases elsewhere,
and being pre-eminently convenient as a means of credit by
which capital can be raised.” — Furthermore, as soon as somewhat
threatening conditions induce the bank to raise its discount
rate — whereby the probability exists at the same time that the
bank will cut down the running time of the bills to be discounted
by it — the general apprehension spreads that this will rise in
crescendo. Everyone, and above all the credit swindler, will
therefore strive to discount the future and have as many means
of credit as possible at his command at the given time. These
reasons, then, amount to this: it is not that the mere quantity
of imported or exported precious metal as such which makes
its influence felt, but that it exerts its effect, firstly, by virtue
of the specific character of precious metal as capital in money-
form, and secondly, by acting like a feather which, when added
to the weight on the scales, suffices to tip the oscillating balance
definitely to one side; it acts because it arises under conditions
when any addition decides in favour of one or the other side.
Without these grounds, it would be quite inexplicable why a

572

DIVISION OF PROFIT

drain of gold amounting to, say, £5,000,000 to £8,000,000 —
and this is the limit of experience to date — should have any
appreciable effect. This small decrease or increase of capital, which
seems insignificant even compared to the £70 million in gold
which circulate on an average in England, is really a negligibly
small magnitude when compared to production of such volume
as that of the English.17 But it is precisely the development of
the credit and banking system, which tends, on the one hand,
to press all money-capital into the service of production (or
what amounts to the same thing, to transform all money income
into capital), and which, on the other hand, reduces the metal
reserve to a minimum in a certain phase of the cycle, so that it
can no longer perform the functions for which it is intended —
it is the developed credit and banking system which creates
this over-sensitiveness of the whole organism. At less developed
stages of production, the decrease or increase of the hoard below
or above its average level is a relatively insignificant matter.
Similarly, on the other hand, even a very considerable drain
of gold is relatively ineffective if it does not occur in the critical
period of the industrial cycle.

In the given explanation we have not considered cases in
which a drain of gold takes place as a result of crop failures, etc.
In such cases the large and sudden disturbance of the equilibrium
of production, which is expressed by this drain, requires no fur¬
ther explanation as to its effect. This effect is that much greater
the more such a disturbance occurs in a period when production
is in full swing.

We have also omitted from consideration the function of the
metal reserve as a security for bank-note convertibility and as
the pivot of the entire credit system. The central bank is the pivot
of the credit system. And the metal reserve, in turn, is the pivot
of the bank.18 The change-over from the credit system to the
monetary system is necessary, as I have already shown in Book I

17 See, for instance, the ridiculous reply of Weguelin [B. A. 1857],
where he states that a drain of five million in gold is so much capital
less, and thus attempts to explain certain phenomena which do not
take place when there is an infinitely greater increase in prices or deprecia¬
tion, expansion or contraction of real industrial capital. On the other hand,
it is just as ridiculous to attempt to explain these phenomena directly as
symptoms of an expansion or contraction of the mass of real capital (con¬
sidered from the viewpoint of its material elements).

18 Newmarch (B. A. 1857): “1364. The reserve of bullion in the Bank of
England is, in truth, the central reserve or hoard of treasure upon which the
whole trade of the country is made to turn; all the other banks in the coun-

PRECIOUS METAL AND RATE OF EXCHANGE

573

(Kap. Ill)* in discussing means of payment. That the greatest
sacrifices of real wealth are necessary to maintain the metallic
basis in a critical moment has been admitted by both Tooke
and Loyd-Overstone. The controversy revolves merely round a
plus or a minus, and round the more or less rational treatment of
the inevitable.1* A certain quantity of metal, insignificant com¬
pared with the total production, is admitted to be the pivotal
point of the system. Hence the superb theoretical dualism, aside
from the appalling manifestation of this characteristic that it
possesses as the pivotal point during crises. So long as enlightened
economy treats “of capital ” ex professo, it looks down upon gold
and silver with the greatest disdain, considering them as the
most indifferent and useless form of capital. .But as soon as it
treats of the banking system, everything is reversed, and gold
and silver become capital par excellence , for whose preservation
every other form of capital and labour is to be sacrificed. But how
are gold and silver distinguished from other forms of wealth?
Not by the magnitude of their value, for this is determined by
the quantity of labour incorporated in them; but by the fact
that they represent independent incarnations, expressions of the
social character of wealth. [The wealth of society exists only as
the wealth of private individuals, who are its private owners.
It preserves its social character only in that these individuals
mutually exchange qualitatively different use-values for the
satisfaction of their wants. Under capitalist production they can
do so only by means of money. Thus the wealth of the individual
is realised as social wealth only through the medium of money.
It is in money, in this thing, that the social nature of this wealth
is incarnated. — F. E.\ This social existence of wealth therefore
assumes the aspect of a world beyond, of a thing, matter, commod¬
ity, alongside of and external to the real elements of social
wealth. So long as production is in a state of flux this is forgotten.
Credit, likewise a social form of wealth, crowds out money and
usurps its place. It is faith in the social character of production

try look to the Bank of England as the central hoard or reservoir from which
they are to draw their reserve of coin; and it is upon that hoard or reservoir
that the action of the foreign exchanges always falls. "

* English edition: Vol. I, Ch. Ill, pp. 137-38.— Ed.

l* “Practically, then, both Mr. Tooke and Mr. Loyd would meet an addi¬
tional demand for gold ... by an early ... contraction of credit by raising
the rate of interest, and restricting advances of capital.... But the principles
of Mr. Loyd lead to certain [legal] restrictions and regulations which ...
produce the most serious inconvenience.” {Economist [December 11 ], 1847,
p. 1418.)

574

DIVISION OP PROFIT

which allows the money-form of products to assume the aspect
of something that is only evanescent and ideal, something merely
imaginative. But as soon as credit is shaken— and this phase
of necessity always appears in the modern industrial cycle — all
the real wealth is to be actually and suddenly transformed into
money, into gold and silver— a mad demand, which, however,
grows necessarily out of the system itself. And all the gold and
silver which is supposed to satisfy these enormous demands
amounts to but a few millions in the vaults of the Bank.20

Among the effects of the gold drain, then, the fact that produc¬
tion as social production is not really subject to social control,
is strikingly emphasised by the existence of the social form of
wealth as a thing external to it. The capitalist system of produc¬
tion, in fact, has this feature in common with former systems of
production, In so far as they are based on trade in commodities
and private exchange. But only in the capitalist system of pro¬
duction does this become apparent in the most striking and
grotesque form of absurd contradiction and paradox, because, in
the first place, production for direct use-value, for consumption
by the producers themselves, is most completely eliminated
under the capitalist system, so that wealth exists only as a social
process expressed as the intertwining of production and circula¬
tion; and secondly, with the development of the credit system,
capitalist production continually strives to overcome the metal
barrier, which is simultaneously a material and imaginative
barrier of wealth and its movement, but again and again it breaks
its back on this barrier.

In the crisis, the demand is made that all bills of exchange,
securities and commodities shall be simultaneously convertible
into bank money, and all this bank money, in turn, into gold.

II. THE RATE OF EXCHANGE

[The rate of exchange is known to be the barometer for the
international movement of money metals. If England has more
payments to make to Germany than Germany to England, the
price of marks, expressed in sterling, rises in London, and the

20 “You quite agree that there is no mode by which you can modify the
demand for bullion except by raising the rate of interest? ’’—Chapman [as¬
sociate member of the great bill-brokers' firm of Overend, Gurney & Co.]:
“I should say so.... When our bullion falls to a certain point, we had better
sound the tocsin at once and say we are drooping, and every man sending
money abroad must do it at his own peril. ” (B. A. 1857, Evidence No. 5057.)

PRECIOUS METAL AND RATE OF EXCHANGE

575

price of sterling, expressed in marks, falls in Hamburg and
Berlin. If this preponderance of England’s payment obligations
towards Germany is not balanced again, for instance, by a pre¬
ponderance of purchases by Germany in England, the sterling
price of bills of exchange in marks on Germany must rise to the
point where it will pay to send metal (gold coin or bullion) from
England to Germany in payment of obligations, instead of send¬
ing bills of exchange. This is the typical course of events.

If this export of precious metal assumes a larger scope and lasts
for a longer period, then the English bank reserve is affected, and
the English money-market, particularly the Bank of England,
must take protective measures. These consist mainly, as we have
already seen, in raising the interest rate. When the drain on
gold is considerable, the money-market as a rule becomes tight,
that is, the demand for loan capital in the form of money signifi¬
cantly exceeds the supply and the higher interest rate follows
quite naturally from this; the discount rate fixed by the Bank
of England corresponds to this situation and asserts itself on the
market. However there are cases when the drain on bullion is
due to other than ordinary combinations of business transactions
(for instance, loans to foreign states, investment of capital in
foreign countries, etc.), and the London money-market as such
does not justify an effective rise in the interest rate; the Bank
of England must then first “make money scarce, ” as the phrase
goes, through heavy loans in the “open market” and thus arti¬
ficially create a situation which justifies, or renders necessary,
a rise in the interest rate; such a manoeuvre becomes more dif¬
ficult from year to year. — F. E. ]

How this raising of the interest rate affects the rates of exchange
is shown by the following testimony before the Committee of the
Lower House concerning bank legislation in 1857 (quoted as
B. A. or B. C. 1857).

John Stuart Mill: “2176. When there is a state of commercial
difficulty there is always ... a considerable fall in the price of se¬
curities ... foreigners send over to buy railway shares in this coun¬
try, or English holders of foreign railway shares sell their foreign
railway shares abroad ... there is so much transfer of bullion pre¬
vented. ”—“2182. A large and rich class of bankers and dealers
in securities, through whom the equalisation of the rate of interest
and the equalisation of commercial pressure between different
countries usually takes place ... are always on the look out to
buy securities which are likely to rise.... The place for them to
buy securities will -be the country which is sending bullion away.”

576

DIVISION OF PROFIT

— “2184. These investments of capital took place to a very con¬
siderable extent in 1847, to a sufficient extent to have relieved
the drain considerably.”

J. G. Hubbard, ex-Governor, and a Director of the Bank of
England since 1838: “2545. There are great quantities of European
securities ... which have a European currency in all the different
money-markets, and those bonds, as soon as their value is ...
reduced by 1 or 2 per cent in one market, are immediately purchased
for transmission to those markets where their value is still unim¬
paired. ”-—“2565. Are not foreign countries considerably in debt
to the merchants of this country? — Very largely.” — “2566. There¬
fore, the cashment of those debts might be sufficient to account
for a very large accumulation of capital in this country? — In
1847, the ultimate restoration of our position was effected by our
striking off so many millions previously due by America, and so
many millions due by Russia to this country. ” [At the same time,
England owed these same countries “so and so many millions” for
grain and also did not fail to “draw a line” through the greater
portion of these millions via the bankruptcy of the English
debtors. See the report on Bank Acts, 1857, Chapter XXX, p. SI*
above. — F. E.] — “2572. In 1847, the exchange between this
country and St. Petersburg was very high. When the Government
Letter came out authorising the Bank to issue irrespectively of
the limitation of £14,000,000 [above and beyond the gold
reserve—/’. E.], the stipulation was that the rate of discount
should be 8%. At that moment, with the then rate of discount, it
was a profitable operation to order gold to be shipped from St.
Petersburg to London and on its arrival to lend it at 8% up to the
maturity of the three months’ bills drawn against the purchase
of gold.” — “2573. In all bullion operations there are many points
to be taken into consideration; there is the rate of exchange and
the rate of interest, which is available for the investment during
the period of the maturity of the bill [drawn against it — F. E. ]. ”

RATE OF EXCHANGE WITH ASIA

The following points are important because, on the one hand,
they show how England recoups its losses when its rate of exchange
with Asia is unfavourable, at the expense of other countries, whose
imports from Asia are paid through English middlemen. On the
other hand, they are important because Mr. Wilson once again

Present edition: p. 493.— Ed.

PRECIOUS METAL AND RATE OF EXCHANGE

577

makes the foolish attempt here to identify the eSect of the export
of precious metal on the rates of exchange with the effect of the
export of capital in general upon these rates; the export being in
both cases not as a means of paying or buying, but for capital in¬
vestment. In the first place, it goes without saying that whether
so many millions of pounds sterling are sent to India in precious
metal or iron rails, to be invested in railways there, these are merely
two different forms of transferring the same amount of capital
to another country; namely, a transfer which does not enter the
calculation of ordinary mercantile business, and for which the
exporting country expects no other return than the future annual
revenue from the income of these railways. If this export is made
in the form of precious metal, it will exert a direct influence upon
the money-market and with it upon the interest rate of the country
exporting this precious metal; if not necessarily under all circum¬
stances, then under the previously outlined conditions, since it is
precious metal and as such is directly loanable money-capital and
the basis of the entire money system. Similarly, this export also
directly affects the rate of exchange. Precious metal is exported
only for the reason, and to the extent, that bills of exchange, say
on India, which are offered in the London money-market, do not
suffice to make these extra remittances. In other words, there is
a demand for Indian bills of exchange which exceeds their supply,
and so the rates turn for a time against England, not because it
is in debt to India, but because it has to send extraordinary sums
to India. In the long run, such a shipment of precious metal to
India must have the effect of increasing the Indian demand for
English commodities, because it indirectly increases the consum¬
ing power of India for European goods. But if the capital is shipped
in the form of rails, etc., it cannot have any influence on the
rates of exchange, since India has no return payment to make for
it. Precisely for this reason, it need not have any influence on the
money-market. Wilson seeks to establish the existence of such an
influence by declaring that such an extra expenditure would bring
about an additional demand for money accommodation and would
thus influence the interest rate. This may be the case; but to main¬
tain that it must take place under all circumstances is totally
wrong. No matter where the rails are shipped and whether laid
on English or Indian soil, they represent nothing but a definite
expansion of English production in a particular sphere. To con¬
tend that an expansion of production, even within very broad
limits, cannot take place without driving up the interest rate,
is absurd. Money accommodation, i.e., the amount of business

578

DIVISION OF PROFIT

transacted which includes credit operations, may grow; but these
credit operations can increase wh,ile the interest rate remains un¬
changed. This was actually the case during the railway mania
in England in the forties. The interest rate did not rise. And
it is evident that, so far as actual capital is concerned, in this
case commodities, the effect on the money-market will be just
the same, whether these commodities are destined for foreign
countries or for domestic consumption. It could only make a
difference when capital investments by England in foreign coun¬
tries exerted a restraining influence upon its commercial exports,
i.e., exports for which payment must be made, thus giving rise
to a return flow, or to the extent that these capital investments
are already general symptoms indicating the over-expansion of
credit and the initiation of swindling operations.

In the following, Wilson puts the questions and Newmarch
replies.

“1786. On a former day you stated, with reference to the demand
for silver for the East, that you believed that the exchanges with
Inlia were in favour of this country, notwithstanding the large
amount of bullion that is continually transmitted to the East;
have you any ground for supposing the exchanges to be in favour
of this country?— Yes, I have.... I find that the real value of
the exports from the United Kingdom to India in 1851 was
£7,420,000; to that is to be added the amount of India House
drafts, that is, the funds drawn from India by the East India
Company for the purpose of their own expenditure. Those drafts
in that year amounted to £3,200,000, making, therefore, the
total export from the United Kingdom to India £10,620,000.
In 1855 ... the actual value of the export of goods from the United
Kingdom had risen to £10,350,000 and the India House drafts
were £3,700,000, making, therefore, the total export from this
country £14,050,000. Now as regards 1851, I believe there are
no means of stating what was the real value of the import of
goods from India to this country, but in 1854 and 1855 we have
a statement of the real value; in 1855, the total real value of the
imports of goods from India to this country was £12,670,000 and
that sum, compared with the £14,050,000 I have mentioned, left
a balance in favour of the United Kingdom, as regards the direct
trade between the two countries, of £1,380,000” [B: A. 1857],

Thereupon Wilson remarks that the rates of exchange are also
affected by indirect commerce. For instance, exports from India
to Australia and North America are covered by drafts on Lon¬
don, and therefore affect the rate of exchange just as though the

PRECIOUS METAL AND RATE OF EXCHANGE

579

commodities had gone directly from India to England. Fur¬
thermore, when India and China are considered together, the bal¬
ance is against England, since China has constantly to make heavy
payments to India for opium, and England has to make payments
to China, so that the sums go by this circuitous route to India
(1787, 1788).

1791. Wilson now asks if the effect on the rates of exchange
will not be the same whether capital “went in the form of iron
rails and locomotives, or whether it went in the form of coin.”
Newmarch correctly answers: The £12 million which have been
sent during the last few years to India for railway construction
served to purchase an annuity which India has to pay at regular
intervals to England. “But as far as regards the immediate oper¬
ation on the bullion market, the investments of the £12 million
would only be operative as far as bullion was required to be
sent out for actual money disbursements.”

1797. [Weguelin asks:] “If no return is made for this iron
(rails), how can it be said to affect the exchanges? — I do not
think that that part of the expenditure which is sent out in the
form of commodities affects the computation of the exchange....
The computation of the exchange between two countries is affect¬
ed, one might say, solely by the quantity of obligations or bills
offering in one country, as compared with the quantity offering
in the other country against it; that is the rationale of the ex¬
change. Now, as regards the transmission of those £12,000,000,
the money in the first place is subscribed in this country ... now,
if the nature of the transaction was such that the whole of that
£12,000,000 was required to be laid down in Calcutta, Bombay,
and Madras in treasure ... a sudden demand would very violently
operate upon the price of silver, and upon the exchange, just
the same as if the India Company were to give notice tomorrow
that their drafts were to be raised from £3,000,000 to £12,000,000.
But half of those £12,000,000 is spent ... in buying commodities
in this country ... iron rails and timber, and other materials ...
it is an expenditure in this country of the capital of this country
for a particular kind of commodity to be sent out to India, and
there is an end of it.” — “1798. [Weguelin:] But the production
of those articles of iron and timber necessary for the railways
produces a large consumption of foreign articles, which might
affect the exchange? — Certainly.”

Wilson now thinks that iron represents labour to a large extent,
and that the wage paid for this labour largely represents imported
goods (1799), and then questions further:

580

DIVISION OF PROFIT

“1801. But speaking quite generally, it would have the effect
of turning the exchanges against this country if you sent abroad
the articles which were produced by the consumption of the
imported articles without receiving any remittance for them
either in the shape of produce or otherwise? — That principle is
exactly what took place in this country during the time of the
great railway expenditure [1845]. For three or four or five years,
you spent upon railways £30,000,000, nearly the whole of which
went in the payment of wages. You sustained in three years a
larger population employed in constructing railways, and
locomotives, and carriages, and stations than you employed in
the whole of the factory districts. The people ... spent those wages
in buying tea and sugar and spirits and other foreign commodi¬
ties; those commodities were imported; but it was a fact, that
during the time this great expenditure was going on the foreign
exchanges between this country and other countries were not
materially deranged. There was no efflux of bullion, on the con¬
trary, there was rather an influx.”

1802. Wilson insists that with an equalised trade balance and
par rates between England and India the extra shipment of iron
and locomotives “would affect the exchanges with India.” New-
march cannot see it that way so long as the rails are sent out as
capital investment and India has no payment to make for them
in one form or another; he adds: “I agree with the principle that no
one country can have permanently against itself an adverse state
of exchange with all the other countries, with which it deals; an
adverse exchange with one country necessarily produces a favour¬
able exchange with another. ’’—Wilson retorts with this triviality:
“1803. But would not a transfer of capital be the same whether
it was sent in one form or another?— As regards the obligation
it would.” — “1804. The effect therefore of making railways in
India, whether you send bullion or whether you send materials,
would be the same upon the capital-market here in increasing
the value of capital as if the whole was sent out in bullion?”

If iron prices did not rise, it was in any case proof that the
“value” of “capital ” contained in the rails had not been increased.
What we are here concerned with is the value of money-capital,
i.e., the interest rate. Wilson would like to identify money-capital
with capital in general. The simple fact is essentially that 12 mil¬
lion were subscribed in England for Indian railways. This is a
matter which has nothing directly to do with the rates of exchange,
and the designation of the £12 million is also the same to the
money-market. If the money-market is in good shape, it need

PRECIOUS METAL AND RATE OF EXCHANGE

581

not produce any effect at all on it, just as the English railway
subscriptions in 1844 and 1845 left the money-market unaffected.
If the money-market is already in somewhat difficult straits,
the interest rate might indeed be affected bv it, but certainly
only in an upward direction, and this, according to Wilson’s
theory, would favourably affect the rates of exchange for Eng¬
land, that is, it would work against the tendency to export
precious metal; if not to India, then to some other country. Mr.
Wilson jumps from one thing to another. In Question 1802 it
is the rates of exchange that are supposed to be affected, and in
Question 1804 the “value of capital” — which are two very differ¬
ent things. The interest rate may affect the rates of exchange,
and the rates of exchange may affect the interest rate, but the
latter can be stable while the rates of exchange fluctuate, and
the rates of exchange can be stable while the interest rate fluctu¬
ates. Wilson cannot get it through his head that the mere form
in which capital is shippod abroad makes such a difference in
the effect, i.e., that the difference in the form of capital is of
such importance, and particularly its money-form, which runs
very much counter to enlightened economy Newmarch replies
to Wilson one-sidedly in that he does not indicate that he has
jumped so suddenly and without reason from rate of exchange to
interest Tate. Newmarch answers Question 1804 with uncertainty
and equivocation: “No doubt, if there is a demand for £12,000,000
to be raised, it is immaterial, as regards the general rate of inter¬
est, whether that £12 million is required to be sent in bullion or
in materials. I think, however” [a fine transition, this “how¬
ever", when he intends to say the exact opposite] “it is not quite
immaterial” [it is immaterial, but, nevertheless, it is not
immaterial] “because in the one case the £6 million would be
returned immediately; in the other case it would not be returned
so rapidly. Therefore it would make some” [what definiteness!]
“difference, whether the £6 million was expended in this coun¬
try or sent wholly out of it.” What does he mean when he says
six million would return immediately? In so far as the £6 mil¬
lion have been expended in England, they exist in rails, loco¬
motives, etc., which are shipped to India, whence they do not
return; their value returns very slowly through amortisation,
whereas the six million in precious metal may perhaps return
very quickly in kind. In so far as the six million have been
expended in wages, they have been consumed; but the money used
for payment circulates in the country the same as ever, or forms
a reserve. The same holds true for the profits of rail producers

582

DIVISION OF PROFIT

and that portion of the six million which replaces their constant
capital. Thus, this ambiguous statement about returns is used
by Newmarch only to avoid saying directly: The money has re¬
mained in the country, and in so far as it serves as loanable money-
capital the difference for the money-market (aside from the possi¬
bility that circulation could have absorbed more coin) is only that
it is charged to the account of A instead of B. An investment of
this kind, where capital is transferred to other countries in com¬
modities, not in precious metal, can affect the rate of exchange
(but not the rate of exchange with the country in which the ex¬
ported capital is invested) only in so far as the production of these
exported commodities requires an additional import of other
foreign commodities. This production then cannot balance out
the additional import. However, the same thing happens with
every export on credit, no matter whether intended for capital
investment or ordinary commercial purposes. Moreover, this ad¬
ditional import can also call forth by way of reaction an addition¬
al demand for English goods, for instance, on the part of the
colonies or the United States.

Previously [1786], Newmarch stated that, owing to drafts
of the East India Company, exports from England to India were
larger than imports. Sir Charles Wood cross-examines him on
this score. This preponderance of English exports to India over
imports from India is actually brought about by imports from
India for which England does not pay any equivalent. The drafts
of the East India Company (now the East India government)
resolve themselves into a tribute levied on India. For instance,
in 1855, imports from India to England amounted to £12,670,000;
English exports to India amounted to £10,350,000; balance in
India’s favour £2,250,000.* “If that was the whole state of the
case, that £2,250,000 would have to be remitted in some form
to India. But then come in the advertisements from the India
House. The India House advertise to this effect that they are
prepared to grant drafts on the various presidencies in India
to the extent of £3,250,000. [This amount was levied for the
London expenses of the East India Company and for the dividends
to be paid to stockholders.] And that not merely liquidates the
£2,250,000 which arose out of the course of trade, but it presents
£1,000,000 of surplus” (1917) [B. A. 1857],

* I.e., approximately 21/, million; more precisely, 2,320,000.— Ed.

PRECIOUS METAL AND RATE OF EXCHANGE

583

“1922. [Wood:] Then the effect of those India House drafts is
not to increase the exports to India, but pro tanto to diminish
them?” [This should read: to reduce the necessity of covering
the imports from India by exports to that country to the same
amount. ] Mr. Newmarch explains this by saying that the British
import “good government” into India for these £3,700,000 (1925).
Wood, as a former Minister for India, knows full well the kind
of “good government” which the British import to India, and
correctly replies with irony: “1926. Then the export, which, you
state, is caused by the East India drafts, is an export of good
government, and not of produce.” — Since England exports a good
deal “in this way” for “good government” and as capital invest¬
ment in foreign countries — thus obtaining imports which are
completely independent of the ordinary run of business, tribute
partly for exported “good government” and partly in the form
of revenues from capital invested in the colonies or elsewhere,
i.e., tribute for which it does not have to pay any equivalent —
it is evident that the rates of exchange are not affected when
England simply consumes this tribute without exporting any¬
thing in return. Hence, it is also evident that the rates of exchange
are not affected when it reinvests this tribute, not in England,
but productively or unproductively in foreign countries; for
instance, when it sends munitions for it to the Crimea. Moreover,
to the extent that imports from abroad enter into the revenue of
England — of course, they must be paid for in the form of tribute,
for which no equivalent return is necessary, or by exchange
for this unpaid tribute or in the ordinary course of commerce —
England can either consume them or reinvest them as capital.
In neither case are the rates of exchange affected, and this is
overlooked by the sage Wilson. Whether a domestic or a foreign
product constitutes a part of the revenue — whereby the latter
case merely requires an exchange of domestic for foreign prod¬
ucts — the consumption of this revenue, be it productive or un¬
productive, alters nothing in the rates of exchange, even though
it may alter the scale of production. The following should be read
with the foregoing in mind:

1934. Wood asks Newmarch how the shipment of war supplies
to the Crimea would affect the rate of exchange with Turkey. New¬
march replies: “I do not see tl^at the mere transmission of warlike
stores would necessarily affect the exchange, but certainly the
transmission of treasure would affect the exchange. ” In this case
he thus distinguishes capital in the form of money from capital
in other forms. But now Wilson asks:

584

DIVISION OF PROFIT

“1935. If you make an export of any article to a great extent,
for which there is to be no corresponding import” [Mr. Wilson
forgets that there are very considerable imports into England
for which corresponding exports have never taken place, except
in the form of “good government” or of previously exported
investment capital; in any case imports which do not enter into
normal commercial movement. But these imports are again ex¬
changed, for instance, for American products, and the circum¬
stance that American goods are exported without corresponding
imports does not alter the fact that the value of these imports
can be consumed without an equivalent flow abroad; they have
been received without reciprocal exports and can therefore be
consumed without entering into the balance of trade], “you
do not discharge the foreign debt you have created by your im¬
ports” [but, if you have previously paid for these imports, for
instance, by credit given abroad, then no debt is contracted
thereby, and the question has nothing to do with the international
balance; it resolves itself into productive and unproductive ex¬
penditures, no matter whether the products so consumed are
domestic or foreign], “and therefore you must by that trans¬
action affect the exchanges by not discharging the foreign debt,
by reason of your export having no corresponding imports? —
That is true as regards countries generally. ”

This lecture by Wilson amounts to saying that every export
with no corresponding import is simultaneously an import with
no corresponding export, because foreign, i.e., imported, com¬
modities enter into the production of the exported article. The
assumption is that every export of this kind is based on, or creates,
an unpaid import and thus presupposes a debt abroad. This is
wrong, even when the following two circumstances are disregard¬
ed: 1) England receives certain imports free of charge for which
it pays no equivalent, e.g., a portion of its Indian imports. It
can exchange these for American imports and export the latter
without importing in return; in any case, so far as the value is
concerned, it has only exported something that has cost it noth¬
ing. 2) England may have paid for imports, for instance, Amer¬
ican imports, which constitute additional capital; if it consumes
these unproductively, for instance, as war materials, this does
not constitute any debt towards America and does not affect the
rate of exchange with America. Newmarch contradicts himself
in Nos. 1934 and 1935, and Wood calls this to his attention in
No. 1938: “If no portion of the goods which are employed in the
manufacture of the articles exported without return [war materi-

PRECIOUS METAL AND RATE OF EXCHANGE

585

als], came from the country to which those articles are sent, how
is the exchange with that country affected; supposing the trade with
Turkey to be in an ordinary state of equilibrium, how is the ex¬
change between this country and Turkey affected by the export
of warlike stores to the Crimea?” — Here Newmarch loses his
equanimity; he forgets that he has answered the same simple
question correctly in No, 1934, and says: “We seem, I think,
to have exhausted the practical question, and to have now at¬
tained a very elevated region of metaphysical discussion.”

[Wilson has still another version of his claim that the rate of ex¬
change is affected by every transfer of capital from one country
to another, no matter whether in the form of precious metal or
commodities. Wilson knows, of course, that the rate of exchange
is affected by the interest rate, particularly by the relation of
the rates of interest prevailing in the two countries whose mutual
rates of exchange are under discussion. If he can now demon¬
strate that surpluses of capital in general, i.e., in the first place,
commodities of all kinds including precious metal, have a hand
in influencing the interest rate, then he is a step closer to his
goal; a transfer of any considerable portion of this capital to
some other country must then change the interest rate in both
countries, with the change taking place in opposite directions.
Thereby, in a secondary way, the rate of exchange between both
countries is also altered. — F. E.)

He then says in the Economist, May 22, 1847, page 574,
which he edited at the time:

“... No doubt, however, such abundance of capital as is indi¬
cated by large stocks of commodities of all kinds, including bul¬
lion, would necessarily lead, not only to low prices of commodities
in general, but also to a lower rate of interest for the use of cap¬
ital1). If we have a stock of commodities on hand, which is suf¬
ficient to serve the country for two years to come, a command
over those commodities would be obtained for a given period,
at a much lower rate than if the stocks were barely sufficient
to last us two months2). All loans of money, in whatever shape
they are made, are simply a transfer of a command over com¬
modities from one to another. Whenever, therefore, commodities
are abundant, the interest of money must be low, and when they
are scarce, the interest of money must be high8). As commodities
become abundant, the number of sellers, in proportion to the
number of buyers, increases, and, in proportion as the quantity

586

DIVISION OF PROFIT

is more than is required for immediate consumption, so must
a larger portion be kept for future use. Under these circumstances,
the terms on which a holder becomes willing to sell for a future
payment, or on credit, become lower than if he were certain that
his whole stock would be required within a few weeks”4).

In regard to statement1), it is to be noted that a large influx
in precious metal can take place simultaneously with a contrac¬
tion in production, as is always the case in the period following
a crisis. In the subsequent phase, precious metal may come in from
countries which mainly produce precious metal; imports of other
commodities are generally balanced by exports during this period.
In these two phases, the interest rate is low and rises but slowly;
we have already discussed the reason for this. This low interest
rate could always be explained without recourse to the influence of
any “large stocks of commodities of all kinds. ” And how is this
influence to take place? The low price of cotton, for instance,
renders possible the high profits of the spinners, etc. Now why is
the interest rate low? Surely not because the profit, which may be
made on borrowed capital, is high. But simply and solely because,
under existing conditions, the demand for loan capital does not
grow in proportion to this profit; in other words, because loan cap¬
ital has a movement different from industrial capital. What the
Economist wants to prove is exactly the reverse, namely, that the
movements of loan capital are identical with those of industrial
capital.

In regard to statement2), if we reduce the absurd assumption of
stocks for two years in advance to the point where it begins to take
on some meaning, it signifies that the market is overstocked. This
would cause a fall in prices. Less would have to be paid for a bale
of cotton. This would by no means justify the conclusion that
money for the purchase of this cotton is more easily borrowed.
This depends on the state of the money-market. If money can be
borrowed more easily, it is only because commercial credit is in a
state requiring it to make less use than usual of bank credit. The
commodities glutting the market are either means of subsistence
or means of production. The low price of both increases the in¬
dustrial capitalist’s profit. Why should it depress the interest
rate, unless it be through the antithesis, rather than the identity,
between the abundance of industrial capital and the demand
for money accommodation? Circumstances are such that the mer¬
chant and industrial capitalist can more easily advance credit
to one another; owing to this facilitation of commercial credit,
both industrialist as well as merchant need less bank credit;

PRECIOUS METAL AND RATE OF EXCHANGE

587

hence the interest rate can be low. This low interest rate has
nothing to do with the influx in precious metal, although both
may run parallel to each other, and the same causes bringing
about low prices of imported articles may also produce a surplus
of imported precious metal. If the import market were really
glutted, it would prove that a decrease in the demand for imported
articles had taken place, and this would be inexplicable at low
prices, unless it were attributed to a contraction of domestic
industrial production; but this, again, would be inexplicable,
so long as there is excessive importing at low prices. A mass of
absurdities — in order to prove that a fall in prices=a fall in the
interest rate. Both may simultaneously exist side by side. But
if they do, it will be a reflection of the opposition in the directions
of the movement of industrial capital and the movement of loanable
money-capital. It will not be a reflection of their identity.

In regard to statement3), it is hard to understand even after
this exposition why money interest should be low when commodi¬
ties are available in abundance. If commodities are cheap, then I
may need only £1.000 instead of the previous £2,000 to buy a
definite quantity. But perhaps I nevertheless invest £2,000, and
thus buy twice the quantity which I could have bought formerly.
In this way, I expand my business by advancing the same capital,
which I may have to borrow. I buy £2,000 worth of commodities,
the same as before. My demand on the money-market therefore
remains the same, even though my demand on the commodity-
market rises with the fall in commodity-prices. But if this demand
for commodities should decrease, that is, if production should
not expand with the fall in commodity-prices, an event which
would contradict all the laws of the Economist, then the demand
for loanable money-capital would decrease, although the profit
would increase. But this increasing profit would create a demand
for loan capital. Incidentally, a low level of commodity-prices
may be due to three causes. First, to lack of demand. In such
a case, the interest rate is low because production is paralysed
and not because commodities are cheap, for the low prices are
but a reflection of that, paralysis. Second, it may be due to supply
exceeding demand. This may be the result of a glut on the
market, etc., which may lead to a crisis and coincide with a high
interest rate during the crisis itself; or, it may be the result of a
fall in the value of commodities, so that the same demand can
be satisfied at lower prices. Why should the interest rate fall
in the last case? Because profits increase? If this were due to
less money-capital being required for obtaining the same produc-

588

DIVISION OF PROFIT

tive or commodity-capital, it would merely prove that profit
and interest are inversely proportional to each other. In any case,
the general statement of the Economist is false. Low money-prices
for commodities and a low interest rate do not necessarily go
together. Otherwise, the interest rate would be lowest in the
poorest countries, where money-prices for produce are lowest,
and highest in the richest countries, where money-prices for
agricultural products -are highest. In general, the Economist ad¬
mits: If the value of money falls, it exerts no influence on the
interest rate. £100 bring £105 the same as ever. If the £100 are
worth less, so are the £5 interest. This relation is not affected by
the appreciation or depreciation of the original sum. Considered
from the point of view of value, a definite quantity of commodi¬
ties is equal to a definite sum of money. If this value increases, it
is equal to a larger sum of money. The opposite is true when it
falls. If the value is equal to 2,000, then 5% = 100; if it is equal to
1,000, then 5% = 50. But this does not alter the interest rate in any
way. The rational part of this matter is merely that greater money
accommodation is required when it takes £2,000 to sell the same
quantity of commodities than when only £1,000 are required. But
this merely shows that profit and interest are here inversely pro¬
portional to each other. For the lower the prices of the components
of constant and variable capital, the higher the profit and the
lower the interest. But the opposite can also be and is often the
case. For instance, cotton may be cheap because no demand exists
for yarn and fabrics; and cotton may be relatively expensive
because a large profit in the cotton industry creates a great
demand for it. On the other hand, the profits of industrialists may
be high precisely because the price of cotton is low. Hubbard’s
table proves that the interest rate and the prices of commodities
execute completely independent movements, whereas the move¬
ments of the interest rate adhere closely to those of the metal
reserve and the rates of exchange.

The Economist states: “Whenever, therefore, commodities are
abundant, the interest of money must be low.” Precisely the oppo¬
site obtains during crises. Commodities are superabundant, in¬
convertible into money, and therefore the interest rate is high;
in another phase of the cycle the demand for commodities is
great and therefore quick returns are made, but at the same time,
prices are rising and because of the quick returns the interest
rate is low. “When they [the commodities] are scarce, the in¬
terest of money must be high.” The opposite is again true in
the slack period following a crisis. Commodities are scarce,

PRECIOUS METAL AND RATE OF EXCHANGE

589

absolutely speaking, not with reference to demand; and the Inter¬
est rate is low.

In regard to statement4), it is pretty evident that an owner of
commodities* provided he can sell the latter at all, will get rid
of them at a lower price when the market is glutted than he would
when there is a prospect of the existing supply becoming rapidly
exhausted. But why the interest rate should fall because of that is
not so clear.

If the market is glutted with imported commodities, the inter¬
est rate may rise as a result of an increased demand on the part
of the owners for loan capital, in order to avoid dumping their
commodities on the market. The interest rate may fall, because
the fluidity of commercial credit may keep the demand for bank
credit relatively low.

The Economist mentions the rapid effect on rates of exchange
in 1847 of the raising of the interest rate and other circumstances
exerting pressure on the money-market. But it should be borne
in mind that the gold drain continued until the end of April in
spite of the change in the rates of exchange; a turn did not take
place here until early May.

On January 1, 1847, the metal reserve of the Bank was
£15,066,691; the interest rate 3 l/2%; three months’ rates of ex¬
change on Paris 25.75; on Hamburg 13.10; on Amsterdam 12.3V4.
On March 5, the metal reserve had fallen to £11,595,535; the dis¬
count had risen to 4%; the rate of exchange fell to 25.671/, on
Paris; 13.9V4 on Hamburg; and 12.2V2 on Amsterdam. The drain
of gold continued. See the following table:

1847

Bullion Re¬
serve of the
Bank of
England fl)

Money-Market

Highest Three-Month Rates

March 20
April 3
April 10
April 17
April 24
May 1
May 8

11,231,630

10,246,410

9,867.053

9,329,841

9,213,890

9,337,716

9,588,759

Bank disc. 4%

.. 5% . .

Money very scarco .
Bank disc. 5,5% . .

Pressure .

Increasing pressure
Highest pressure . .

Paris

25. 671/,

25.80

25.90

26. 021/,
26.05
26.15
26.27'/,

Hamburg

13.9s/4

13.10

13.10V,

13.10V4

13.12

13. 12»/«
13. 15V,

K-

Amster¬

dam

12. 21/,

12.3V,

12.4V,

12.5V,

12.6

12.6V,

12.7*/4

590

DIVISION OF PROFIT

In 1847, the total export of precious metal from England amount¬
ed to £8,602,597.

Of this to the. United States . £ 3,226,411

France . . _ . £ 2,479,892

Hanse towns . £ 958,781

Holland . £ 247,743

In spite of the change in the rates at the end of March, the drain
of gold continued for another full month, probably to the United
States.

“We thus see” [says the Economist, August 2, 1847, p. 954]
“how rapid and striking was the effect of a rise in the rate of
interest, and the pressure which ensued in correcting an adverse
exchange, and in turning the tide of bullion back to this country.
This effect was produced entirely independent of the balance
of trade. A higher rate of interest caused a lower price ol secur¬
ities, both foreign and English, and induced large purchases
to be made on foreign account, which increased the amount of
bills to be drawn from this country, while, on the other hand,
the high rate of interest and the difficulty of obtaining money
was such that the demand of those bills fell off, while their
amount increased.... For the same cause orders for imports were
countermanded, and investments of English funds abroad were
realised and brought home for employment here. Thus, for exam¬
ple, we read in the Rio de Janeiro Price Current of the 10th May,
‘Exchange [on England ] has experienced a further decline, prin¬
cipally caused by a pressure on the market for remittance of the
proceeds of large sales of [Brazilian ] government stock, on Eng¬
lish account.’ Capital belonging to this country, which has been
invested in public and other securities abroad, when the interest
was very low here, was thus again brought back when the
interest became high. ”

ENGLAND’S BALANCE OF TRADE

India alone has to pay 5 million in tribute for “good govern¬
ment,” interest and dividends on British capital, etc., not count¬
ing the sums sent home annually by officials as savings from
their salaries, or by English merchants as part of their profit
to be invested in England. Every British colony continually
has to make large remittances for the same reason. Most of the
banks in Australia, the West Indies, and Canada, have been
founded with English capital, and the dividends are payable

PRECIOUS METAL AND RATE OF EXCHANGE

591

in England. In the same way, England owns many foreign
securities— European, North American and South American— on
which it draws interest. In addition to this it has interests in
foreign railways, canals, mines, etc., with corresponding divi¬
dends. Remittance on all these items is made almost exclusively
in products over and above the amount of English exports. On
the other hand what is sent from England to owners of English
securities abroad and for consumption by Englishmen abroad,
is insignificant in comparison.

The question, so far as it concerns the balance of trade and the
rates of exchange, is “at any particular moment one of time.”
“Practically speaking ... England gives long credits upon her
exports, while the imports are paid for in ready money. At
particular moments this difference of practice has a considerable
effect upon the exchanges. At a time when our exports are very
considerably increasing, e.g., 1850, a continual increase of invest¬
ment of British capital must be going on ... in this way remit¬
tances of 1850 may be made against goods exported in 1849. But
if the exports of 1850 exceed those of 1849 by more than 6 mil¬
lion, the practical effect must be that more money is sent abroad,
to this amount, than returned in the same year. And in this way
an effect is produced on the rates of exchange and the rate of
interest. When, on the contrary, our trade is depressed after a
commercial crisis, and when our exports are much reduced, the
remittances due for the past years of larger exports greatly exceed
the value of our imports; the exchanges become correspondingly
in our favour, capital rapidly accumulates at home, and the rate
of interest becomes 'less. ” ( Economist , January 11, 1851 [p. 30].)

The foreign rates of exchange can change:

1) In consequence of the immediate balance of payments, no
matter what the cause— a purely mercantile one, or capital
investment abroad, or government expenditures for wars, etc., in
so far as cash payments thereby are made to foreign countries.

2) In consequence of money depreciation — whether metal or
paper — in a particular country. This is purely nominal. If £1
should represent only half as much money as formerly, it would
naturally be counted as 12.5 francs instead of 25 francs.

3) When it is a matter of a rate of exchange between countries,
of which one uses silver and the other gold as “money, ” the rate of
exchange depends upon the relative fluctuations of the value of
these two metals, since these necessarily alter the parity between
them. This is illustrated by the rates of exchange in 1850; they
were unfavourable to England, although that country’s export

592

DIVISION 01’ PROFIT

rose enormously. Yet no drain of gold took place. This was a
result of a momentary rise in the value of silver as against gold.
(See Economist, November 30, 1850 [pp. 1319-1320].)

Parity for the rate of exchange of £1 is: Paris, 25 francs 20 cent.;
Hamburg, 13 marks banko 10.5 shillings; Amsterdam, 11 florins
97 cent. To the extent that the Paris rate of exchange exceeds
25.20 francs, it becomes more favourable to the English debtor
of France, or the buyer of French commodities. In both cases he
needs fewer pounds sterling in order to accomplish his purpose. —
In remoter countries, where precious metal is not easily obtained
when bills of exchange are scarce and insufficient for remittances
to be made to England, the natural effect is to drive up the prices
of such products as are generally shipped to England since a great¬
er demand arises for them, in order to send them to England in
place of bills of exchange; this is often the case in India.

An unfavourable rate of exchange, or even a drain on gold, can
take place when there is a great abundance of money in England,
the interest rate is low and the price for securities is high.

In the course of 1848 England received large quantities of sil¬
ver from India, since good bills ot exchange were rare and medi¬
ocre ones were not readily accepted in consequence of the crisis of
1847 and the general lack of credit in business with India. All this
silver had barely arrived before it found its way to the continent,
where the revolution led to the formation of many hoards. The
bulk of the same silver made the trip back to India in 1850, since
the rate of exchange now made this profitable.

The monetary system is essentially a Catholic institution, the
credit system essentially Protestant. “The Scotch hate gold.” In
the form of paper the monetary existence of commodities is only a
social one. It is Faith that brings salvation. Faith in money-value
as the immanent spirit of commodities, faith in the mode of
production and its predestined order, faith in the individual
agents of production as mere personifications of self-expanding
capital. But the credit system does not emancipate itself from
the basis of the monetary system any more than Protestantism
has emancipated itself from the foundations of Catholicism.

CHAPTER XXXVI

PRE-CAPITALIST RELATIONSHIPS

Interest-bearing capital, or, as we may call it in its antiquated
form, usurer’s capital, belongs together with its twin brother, mer¬
chant’s capital, to the antediluvian forms of capital, which long
precede the capitalist mode of production and are to be found in
the most diverse economic formations of society.

The existence of usurer's capital merely requires that at least
a portion of products should be transformed into commodities,
and that money should have developed in its various functions
along with trade in commodities.

The development of usurer’s capital is bound up with the
development of merchant’s capital and especially that of money¬
dealing capital. In ancient Rome, beginning with the last years
of the Republic, when manufacturing stood far below its average
level of development in the ancient world, merchant’s capital,
money-dealing capital, and usurer’s capital developed to their
highest point within the ancient form.

We have seen* that hoarding necessarily appears along with
money. But the professional hoarder does not become important
until he is transformed into a usurer.

The merchant borrows money in order to make a profit with it,
in order to use it as capital, that is, to expend it. Hence in earlier
forms of society the money-lender stands in the same relation to
him as to the modern capitalist. This specific relation was also
experienced by the Catholic universities. “The universities of
Alcald, Salamanca, Ingolstadt, Freiburg in Breisgau, Mayence,
Cologne, Treves, one after another recognised the legality of interest

• English edition: Vol. I, pp. 130-34. — Ed.

594

DIVISION OF PROFIT

for commercial loans. The first five of these approbations were de¬
posited in the archives of the Consulate of the city of Lyons and
published in the appendix to the Traite de I'usure et des interets,
by Bruyset-Ponthus, Lyons. ” (M. Augier, Le Credit public, etc „
Paris, 1842, p. 206.) In all the forms in which slave economy
(not the patriarchal kind, but that of later Grecian and Roman
times) serves as a means of amassing wealth, where money there¬
fore is a means of appropriating the labour of others through the
purchase of slaves, land, etc., money can be expanded as capital,
i.e., bear interest, for the very reason that it can be so invested.

The characteristic forms, however, in which usurer’s capital
exists in periods antedating capitalist production are of two
kinds. I purposely say characteristic forms. The same forms re¬
peat themselves on the basis of capitalist production, but as
mere subordinate forms. They ar&.then no longer the forms which
determine the character of interest-bearing capital. These two
forms are: first, usury by lending money to extravagant members
of the upper classes, particularly landowners; secondly, usury
by lending money to small producers who possess their own con¬
ditions of labour — this includes the artisan, but mainly the peas¬
ant, since particularly under pre-capitalist conditions, in so far
as they permit of small independent individual producers, the
peasant class necessarily constitutes the overwhelming majority
of them.

Both the ruin of rich landowners through usury and the impov¬
erishment of the small producers lead to the formation and con¬
centration of large amounts of money-capital. But to what extent
this process does away with the old mode of production, as hap¬
pened in modern Europe, and whether it puts the capitalist mode of
production in its stead, depends entirely upon the stage of histor¬
ical development and the attendant circumstances.

Usurer’s capital as the characteristic form of interest-bearing
capital corresponds to the predominance of small-scale production
of the self-employed peasant and small master craftsman. When
the labourer is confronted by the conditions of labour and by the
product of labour in the shape of capital, as under the developed
capitalist mode of production, he has no occasion to borrow any
money as a producer. When he does any money borrowing, he
does so, for instance, at the pawnshop to secure personal neces¬
sities. But wherever the labourer is the owner, whether actual
or nominal, of his conditions of labour and his product, he stands
as a producer in relation to the money-lender’s capital, which
confronts him as usurer’s capital. Newman expresses the matter

PRE-CAPITALIST RELATIONSHIPS

595

insipidly when he says the banker is respected, while the usurer
is hated and despised, because the banker lends to the rich, where¬
as the usurer lends to the poor. (F. W. Newman, Lectures on
Political Economy , London, 1851, p. 44.) He overlooks the fact
that a difference between two modes of social production and
their corresponding social orders lies at the heart of the matter
and that the situation cannot be explained by the distinction
between rich and poor. Moreover, the usury which sucks dry
the small producer goes hand in hand with the usury which sucks
dry the rich owner of a large estate. As soon as the usury of the
Roman patricians had completely ruined the Roman plebeians,
the small peasants, this form of exploitation came to an end and
a pure slave economy replaced the small-peasant economy.

In the form of interest, the entire surplus above the barest
means of subsistence (the amount that later becomes wages of the
producers) can be consumed by usury (this later assumes the form
of profit and ground-rent), and hence it is highly absurd to com¬
pare the level of this interest, which assimilates all the surplus-
value excepting the share claimed by the state, with the level
of the modem interest rate, where interest constitutes at least
normally only a part of the surplus-value. Such a comparison
overlooks that the wage-worker produces and gives to the capi¬
talist who employs him, profit, interest and ground-rent, i.e.,
the entire surplus-value. Carey makes this absurd comparison
in order to show how advantageous the development of capital,
and the fall in the interest rate that accompanies it, are for the
labourer. Furthermore, while the usurer, not content with squeez¬
ing the surplus-labour out of his victim, gradually acquires pos¬
session even of his very conditions of labour, land, house, etc.,
and is continually engaged in thus expropriating him, it is
again forgotten that, on the other hand, this complete expropria¬
tion of the labourer from his conditions of labour is not a result
which the capitalist mode of production seeks to achieve, but
rather the established condition for its point of departure. The
wage-slave, just like the real slave, cannot become a creditor’s
slave due to his position — at least in his capacity as producer;
the wage-slave, it is true, can become a creditor’s slave in his
capacity as consumer. Usurer’s capital in the form whereby it
indeed appropriates all of the surplus-labour of the direct produc¬
ers, without altering the mode of production; whereby the owner¬
ship or possession by the producers of the conditions of labour
— and small-scale production corresponding to this — is its es¬
sential prerequisite; whereby, in other words, capital does not

596

DIVISION OP PROFIT

directly subordinate labour to itself, and does not, therefore,
confront it as industrial capital — this usurer’s capital impover¬
ishes the mode of production, paralyses the productive forces in¬
stead of developing them, and at the same time perpetuates the
miserable conditions in which the social productivity of labour is
not developed at the expense of labour itself, as in the capitalist
mode of production.

Usury thus exerts, on the one hand, an undermining and
destructive influence on ancient and feudal wealth and ancient and
feudal property. On the other hand, it undermines and ruins
small-peasant and small-burgher production, in short, all forms
in which the producer still appears as the owner of his means of
production. Under the developed capitalist mode of production,
the labourer is not the owner of the means of production, i.e., the
field which he cultivates, the raw materials which he processes,
etc. But under this system separation of the producer from the
means of production reflects an actual revolution in the mode
of production itself. The isolated labourers are brought together
in large workshops for the purpose of carrying out separate but
interconnected activities; the tool becomes a machine. The mode
of production itself no longer permits the dispersion of the in¬
struments of production associated with small property; nor
does it permit the isolation of the labourer himself. Under the
capitalist mode of production usury can no longer separate the
producer from his means of production, for they have already
been separated.

Usury centralises money wealth where the means of production
are dispersed. It does not alter the mode of production, but at¬
taches itself firmly to it like a parasite and makes it wretched. It
sucks out its blood, enervates it and compels reproduction to pro¬
ceed under ever more pitiable conditions. Hence the popular
hatred against usurers, which was most pronounced in the ancient
world where ownership of means of production by the producer
himself was at the same time the basis for political status, the
independence of the citizen.

To the extent that slavery prevails, or in so far as the surplus-
product is consumed by the feudal lord and his retinue, while
either the slave-owner or the feudal lord fall into the clutches
of the usurer, the mode of production still remains the same;
it only becomes harder on the labourer. The indebted slave¬
holder or feudal lord becomes more oppressive because he is
himself more oppressed. Or he finally makes way for the usurer,
who becomes a landed proprietor or a slave-holder himself, like

PRE-CAPITALIST RELATIONSHIPS

597

the knights in ancient Rome. The place of the old exploiter,
whose exploitation was more or less patriarchal because it was
largely a means of political power, is taken by a hard, money-
mad parvenu. But the mode of production itself is not altered
thereby.

Usury has a revolutionary effect in all pre-capitalist modes of
production only in so far as it destroys and dissolves those forms
of property on whose solid foundation and continual reproduction
in the same form the political organisation is based. Under Asian
forms, usury can continue a long time, without producing any¬
thing more than economic decay and political corruption. Only
where and when the other prerequisites of capitalist production
are present does usury become one of the means assisting in es¬
tablishment of the new mode of production by ruining the feudal
lord and small-scale producer, on the one hand, and centralising
the conditions of labour into capital, on the other.

In the Middle Ages no country had a general rate of interest.
The Church forbade, from the outset, all lending at interest. Laws
and courts offered little protection for loans. Interest was so much
the higher in individual cases. The limited circulation of money,
the need to make most payments in cash, compelled people to
borrow money, and all the more so when the exchange business
was still undeveloped. There were large divergences both in inter¬
est rates and the conceptions of usury. In the time of Charle¬
magne it was considered usurious to charge 100%. In Lindau on
Lake Constance, some local burghers took 2168/s % in 1348. In
Zurich, the City Council decreed that 43 V,% should be the legal
interest rate. In Italy 40% had to be paid sometimes, although
the usual rate from the 12th to the 14th century did not exceed
20%. Verona ordered that 12V*% be the legal rate. Emperor Frie¬
drich II fixed the rate at 10%, but only for Jews. He did not deign
to speak for Christians. In the German Rhine provinces, 10% was
the rule as early as the 13th century. (Hullmann, Geschichte des
S tadtewesens, II, S. 55-57.)

Usurer’s capital employs the method of exploitation charac¬
teristic of capital yet without the latter’s mode of production.
This condition also repeats itself within bourgeois economy, in
backward branches of industry or in those branches which resist
the transition to the modern mode of production. For instance,
if we wish to compare the English interest rate with the Indian,
we should not take the interest rate of the Bank of England, hut
rather, e.g., that charged by lenders of small machinery to small
producers in domestic industry.

20—2494

598

DIVISION OF PROFIT

Usury, in contradistinction to consuming wealth, is historical¬
ly important, inasmuch as it is in itself a process generating
capital. Usurer’s capital and merchant’s wealth promote the
formation of moneyed wealth independent of landed property. The
less products assume the character of commodities, and the less
intensively and extensively exchange-value has taken hold of
production, the more does money appear as actual wealth as
such, as wealth in general — in contrast to its limited representa¬
tion in use-values. This is the basis of hoarding. Aside from
money as world-money and as hoard, it is, in particular, the
form of means of payment whereby it appears as the absolute
form of commodities. And it is especially its function as a means
of payment which develops interest and thereby money-capital.
What squandering and corrupting wealth desires is money as
such, money as a means of buying everything (also as a means
of paying debts). The small producer needs money above all
for making payments. (The transformation of services and taxes
in kind to landlords and the state into money-rent and money-
taxes plays a great role here.) In either case, money is needed as
such. On the other hand, it is in usury that hoarding first becomes
reality and that the hoarder fulfils his dream. What is sought
from the owner of a hoard is not capital, but money as such;
but by means of interest he transforms this hoard of money into
capital, that is, into a means of appropriating surplus-labour
in part or in its entirety, and similarly securing a hold on a part
of the means of production themselves, even though they may
nominally remain the property of others. Usury lives in the
pores of production, as it were, just as the gods of Epicurus lived
in the space between worlds. Money is so much harder to obtain,
the less the commodity-form constitutes the general form of
products. Hence the usurer knows no other barrier but the ca¬
pacity of those who need money to pay or to resist. In small-peasant
and small-burgher production money serves as a means of pur¬
chase, mainly, whenever the means of production of the labourer
(who is still predominantly their owner under these modes of pro¬
duction) are lost to him either by accident or through extraordi¬
nary upheavals, or at least are not replaced in the normal course
of reproduction. Means of subsistence and raw materials consti¬
tute an essential part of these requirements of production. If these
become more expensive, it may make it impossible to replace them
out of the returns for the product, just as ordinary crop failures
may prevent the peasant from replacing his seed in kind. The
same wars through which the Roman patricians ruined the plebe-

PRE-CAPITALIST RELATIONSHIPS

599

ians by compelling them to serve as soldiers and which prevented
them from reproducing their conditions of labour, and therefore
made paupers of them (and pauperisation, the crippling or loss
of the prerequisites of reproduction is here the predominant form)
— these same wars filled the store-rooms and coffers of the patri¬
cians with looted copper, the money of that time. Instead of
directly giving plebeians the necessary commodities, i.e., grain,
horses, and cattle, they loaned them this copper for which they
had no use themselves, and took advantage of this situation
to exact enormous usurious interest, thereby turning the plebe¬
ians into their debtor slaves During the reign of Charlemagne,
the Frankish peasants were likewise ruined by wars, so that they
faced no choice but to become serfs instead of debtors. In the
Roman Empire, as is known, extreme hunger frequently resulted
in the sale of children and also in free men selling themselves
as slaves to the rich. So much for general turning-points. In in¬
dividual cases the maintenance or loss of the means of production
on the part of small producers depends on a thousand contingen¬
cies, and every one of these contingencies or losses signifies im¬
poverishment and becomes a crevice into which a parasitic usurer
may creep. The mere death of his cow may render the small peas¬
ant incapable of renewing his reproduction on its former scale.
He then falls into the clutches of the usurer, and once in the
usurer’s power he can never extricate himself.

The really important and characteristic domain of the usurer,
however, is the function of money as a means of payment. Every
payment of money, ground-rent, tribute, tax, etc., which becomes
due on a certain date, carries with it the need to secure money for
such a purpose. Hence from the days of ancient Rome to those of
modern times, wholesale usury relies upon tax-collectors, fermiers
generaux, receveurs generaux. Then, there develops with commerce
and the generalisation of commodity-production the separation,
in time; of purchase and payment. The money has to be paid on a
definite date. How this can lead to circumstances in which the
money-capitalist and usurer, even nowadays, merge into one is
shown by modern money crises. This same usury, however, be¬
comes one of the principal means of further developing the neces¬
sity for money as a means of payment — by driving the producer
ever more deeply into debt and destroying his usual means of
payment, since the burden of interest alone makes his normal
reproduction impossible. At this point, usury sprouts up out
of money as a means of payment and extends this function of
money as its very own domain.

20*

600

DIVISION OF PROFIT

The credit system develops as a reaction against usury. But this
should not be misunderstood, nor by any means interpreted in
the manner of the ancient writers, the church fathers, Luther or
the early socialists. It signifies no more and no less than the subor¬
dination of interest-bearing capital to the conditions and require¬
ments of the capitalist mode of production.

On the whole, interest-bearing capital under the modern credit
system is adapted to the conditions of the capitalist mode of
production. Usury as such does not only continue to exist, but is
even freed, among nations with a developed capitalist production,
from the fetters imposed upon it by all previous legislation.
Interest-bearing capital retains the form of usurer’s capital in
relation to persons or classes, or in circumstances where borrowing
does not, nor can, take place in the sense corresponding to the
capitalist mode of production; where borrowing takes place as
a result of individual need, as at the pawnshop; where money is
borrowed by wealthy spendthrifts for the purpose of squander¬
ing; or where the producer is a non-capitalist producer, such as
a small farmer or craftsman, who is thus still, as the immediate
producer, the owner of his own means of production; finally
where the capitalist producer himself operates on such a small
scale that he resembles those self-employed producers.

What distinguishes interest-bearing capital — in so far as it
is an essential element of the capitalist mode of production— from
usurer’s capital is by no means the nature or character of this cap¬
ital itself. It is merely the altered conditions under which it oper¬
ates, and consequently also the totally transformed character of
the borrower who confronts the money-lender. Even when a man
without fortune receives credit in his capacity of industrialist
or merchant, it occurs with the expectation that he will function
as capitalist and appropriate unpaid labour with the borrowed
capital. He receives credit in his capacity of potential capitalist.
The circumstance that a man without fortune but possessing
energy, solidity, ability and business acumen may become a
capitalist in this manner — and the commercial value of each
individual is pretty accurately estimated under the capitalist
mode of production — is greatly admired by apologists of the
capitalist system. Although this circumstance continually brings
an unwelcome number of new soldiers of fortune into the field
and into competition with the already existing individual capi¬
talists, it also reinforces the supremacy of capital itself, expands
its base and enables it to recruit ever new forces for itself out of
the substratum of society. In a similar way, the circumstance

PRE-CAPITALIST RELATIONSHIPS

601

that the Catholic Church in the Middle Ages formed its hier¬
archy out of the best brains in the land, regardless of their estate,
birth or fortune, was one of the principal means of consolidating
ecclesiastical rule and suppressing the laity. The more a ruling
class is able to assimilate the foremost minds of a ruled class,
the more stable and dangerous becomes its rule.

The initiators of the modern credit system take as their point
of departure not an anathema against interest-bearing capital in
general, but on the contrary, its explicit recognition.

We are not referring here to such reactions against usury which
attempted to protect the poor against it, like the Monts-de-ptfte
(1350 in Sarlins in Franche-Comte, later in Perugia and Savona
in Italy, 1400 and 1479). These are noteworthy mainly because
they reveal the irony of history, which turns pious wishes into
their very opposite during the process of realisation. According
to a moderate estimate, the English working-class pays 100% to
the pawnshops, the modern successors of Monts-de-ptite.21 We
are also not referring to the credit fantasies of such men as Dr.
Hugh Chamberleyne or John Briscoe, who attempted during the
last decade of the 17th century to emancipate the English aristoc¬
racy from usury by means of a farmers’ bank using paper money
based on real estate.2*

The credit associations established in the 12th and 14th centu¬
ries in Venice and Genoa arose from the need for marine commerce
and the wholesale trade associated with it to emancipate them¬
selves from the domination of out-moded usury and the monopo¬
lisation of the money business. While the actual banks founded in
those city-republics assumed simultaneously the shape of public

11 “It is by frequent fluctuations within the month, and by pawning one
article to relieve another, where a small sum is obtained, that the premium
for money becomes so excessive. There are about 240 licensed pawnbrokers
in the metropolis, and nearly 1,450 in the country. The capital employed
is supposed somewhat to exceed a million pounds sterling; and this capital
is turned round thrice in the course of a year, and yields each time about
331/2per cent on an average; according to which calculation, the inferior
orders of society in England pay about one million a year for the use of a
temporary loan, exclusive of what they lose by goods being forfeited."
(J. D. Tucketl, A History of the Past and Present State of the Labouring
Population, London, 1846, I, p. 114.)

11 Even in the titles of their works they state as their principal purpose
“the general good of the landed men, the great increase of the value of land, ”
the exemption of “the nobility, gentry, etc., from taxes, enlarging their
yearly estates, etc. ” Only the usurers would stand to lose, those worst ene¬
mies of the nation who had done more injury to the nobility and yeomanry
than an army of invasion from France could have done.

602

DIVISION OF PROFIT

credit institutions from which the state received loans on future
tax revenues, it should not be forgotten that the merchants found¬
ing those associations were themselves prominent citizens of those
states and as much interested in emancipating their government
as they were in emancipating themselves from the exactions of
usurers,23 and at the same time in getting tighter and more secure
control over the state. Hence, when the Bank of England was to
be established, the Tories also protested: “Banks are republican
institutions. Flourishing banks existed in Venice, Genoa, Amster¬
dam, and Hamburg. But who ever heard of a Bank of France or
Spain? ”

The Bank of Amsterdam, in 1609, was not epoch-making in the
development of the modern credit system any more than that of
Hamburg in 1619. It was purely a bank for deposits. The cheques
issued by the hank were indeed merely receipts for the deposited
coined and uncoined precious metal, and circulated only with the
endorsement of the acceptors. But in Holland commercial credit
and dealing in money developed hand in hand with commerce and
manufacture, and interest-hearing capital was subordinated to
industrial and commercial capital by the course of development
itself. This could already be seen in the low interest rate. Holland,
however, was considered in the 17th century the model of economic
development, as England is now. The monopoly of old-style usury,
based on poverty, collapsed in that country of its own weight.

During the entire 18th century there is the cry, with Holland
referred to as an example, for a compulsory reduction of the rate
of interest (and legislation acts accordingly), in order to subordi¬
nate interest-bearing capital to commercial and industrial capital,
instead of the reverse. The main spokesman for this movement is
Sir Josiah Child, the father of ordinary English private banking.
He declaims against the monopoly of usurers in much the same
way as the wholesale clothing manufacturers, Moses & Son, do

93 “The rich goldsmith (the precursor of the banker), for example, made
Charles II of England pay twenty and thirty per cent for accommodation.
A business so profitable, induced the goldsmith ‘more and more to become
lender to the King, to anticipate all the revenue, to take every grant of
Parliament into pawn as soon as it was given; also to outvie each other in
buying and taking to pawn bills, orders, and tallies, so that, in effect, all
the revenue passed through their hands’.” (John Francis, History of the
Bank of England, London, 1848, I, p. 31.) “The erection of a bank had been
suggested several times before that. It was at last a necessity” (1. c., p. 38).
“The bank was a necessity for the government itself, sucked dry by usurers,
in order to obtain money at a reasonable rate, on the security of parliamentary
grants” (1. c., pp. 59, 60).

PRE-CAPITALIST RELATIONSHIPS

603

when leading the fight against the monopoly of “private tailors. ”
This same Josiah Child is simultaneously the father of English
stock-jobbing. Thus, this autocrat of the East India Company
defends its monopoly in the name of free trade. Versus Thomas
Manley ( Interest of Money Mistaken)* he says: “As the champion of
the timid and trembling band of usurers he erects his main bat¬
teries at that point which I have declared to be the weakest ...
he denies point-blank that the low rate of interest is the cause
of wealth and vows that it is merely its effect. ” ( Traites sur le
Commerce , etc., 1669, trad. Amsterdam et Berlin, 1754.) “If it is
commerce that enriches a country, and if a lowering of interest
increases commerce, then a lowering of interest or a restriction
of usury is doubtless a fruitful primary cause of the wealth of
a nation. It is not at all absurd to say that the same thing may
be simultaneously a cause under certain circumstances, and an
effect under others” (1. c., p. 155). “The egg is the cause of the
hen, and the hen is the cause of the egg. The lowering of interest
may cause an increase of wealth, and the increase of wealth may
cause a still greater reduction of interest” (1. c., p. 156). “I am
the defender of industry and my opponent defends laziness and
sloth” (p. 179).

This violent battle against usury, this demand for the subor¬
dination of interest-bearing capital to industrial capital, is but
the herald of the organic creations that establish these prerequi¬
sites of capitalist production in the modern banking system, which
on the one hand robs usurer’s capital of its monopoly by concen¬
trating all idle money reserves and throwing them on the money-
market, and on the other, hand limits the monopoly of the
precious metal itself by creating credit-money.

The same opposition to usury, the demand for the emancipation
of commerce, industry and the state from usury, which are
observed here in the case of Child, will be found in all writings on
banking in England during the last third of the 17th and the early
18th centuries. We also find colossal illusions about the miracu¬
lous effects of credit, abolition of the monopoly of precious metal,
its displacement by paper, etc. The Scotsman William Paterson,
founder of the Bank of England and the Bank of Scotland, is
by all odds Law the First.

Against the Bank of England “all goldsmiths and pawnbrokers
set up a howl of rage. ” (Macaulay, History of England, IV, p. 499.)

* Thomas Manley was not the author of this book. It was published
anonymously in London in 1668.— Ed.

604

DIVISION OF PROFIT

“During the first ten years the Bank had to struggle with great dif¬
ficulties; great foreign feuds; its notes were only accepted far
below their nominal value ... the goldsmiths (in whose hands the
trade in precious metals served as a basis of a primitive banking
business) were jealous of the Bank, because their business was
diminished, their discounts were lowered, their transactions with
the government had passed to their opponents.” (J. Francis,
1. c., p. 73.)

Even before the establishment of the Bank of England a plan
was proposed in 1683 for a National Bank of Credit, which had
for its purpose, among others, “that tradesmen, when they have
a considerable quantity of goods, may, by the help of this bank,
deposit their goods, by raising a credit on their own dead stock,
employ their servants, and increase their trade, till they get
a good market instead of selling them at a loss” [J. Francis, 1. c.,
pp. 39-40]. After many endeavours this Bank of Credit was
established in Devonshire House on Bishopsgate Street. It made
loans to industrialists and merchants on the security of deposited
goods to the amount of three-quarters of their value, in the form
of bills of exchange. In order to make these bills of exchange
capable of circulating, a number of people in each branch of
business were organised into a society, from which every pos¬
sessor of such bills would be able to obtain goods with the same
facility as if he were to offer them cash payment. This bank’s
business did not flourish. Its machinery was too complicated,
and the risk too great in case of a commodity depreciation.

If we go by the actual content of those records which accom¬
pany and theoretically promote the formation of the modern
credit system in England, we shall not find anything in them
but — as one of its conditions — the demand for a subordination
of interest-bearing capital and of loanable means of production
in general to the capitalist mode of production. On the other
hand, if we simply cling to the phraseology, we shall be frequently
surprised by the agreement — including the mode of expression —
with the illusions of the followers of Saint-Simon about banking
and credit.

Just as in the writings of the physiocrats the cultivateur does
not stand for the actual tiller of the soil, but for the big farmer,
so the travailleur with Saint-Simon, and continuing on through
his disciples, does not stand for the labourer, but for the indus¬
trial and commercial capitalist. “Un travailleur a besoin d’aides,
de seconds, d’ouvriers; il les cherche intelligents, habiles, devoues;
il les met a I'oeuvre , et leurs travaux sont productifs” ( [Enfan-

PRE-CAPITALIST RELATIONSHIPS

605

tin]* Religion saint-simonienne. Economie politique et Politique,
Paris, 1831, p. 104).

In fact, one should bear in mind that only in his last work,
Le Nouveau Christianisme, Saint-Simon speaks directly for the
working-class and declares their emancipation to be the goal of
his efforts. All his former writings are, indeed, mere encomiums
of modern bourgeois society in contrast to the feudal order, or
of industrialists and bankers in contrast to marshals and juristic
law-manufacturers of the Napoleonic era. What a difference
compared with the contemporaneous writings of Owen!24 For the
followers of Saint-Simon, the industrial capitalist likewise
remains the travailleur par excellence, as the above-quoted
passage indicates. After reading their writings critically, one
will not be surprised that their credit and bank fantasies material¬
ised in the credit mobilier, founded by an ex-follower of Saint-
Simon, Emile Pereire. This form, incidentally, could become
dominant only in a country like France, where neither the credit
system nor large-scale industry had reached the modern level of
development. This was not at all possible in England and Amer¬
ica. The embryo of credit mobilier is already contained in the
following passages from Doctrine de Saint-Simon. Exposition.
Premiere annee, 1828-29, 3“e ed., Paris, 1831. It is understandable
that bankers can lend money more cheaply than the capitalists
and private usurers. These bankers are, therefore, “able to supply
tools to the industrialists far more cheaply, that is, at lower
interest, than the real estate owners and capitalists, who may be

* “A travailleur (worker) needs helpers, supporters, labourers; he looks
for such as are intelligent, able, devoted; he puts them to work, and their
labour is productive.” ( Religion saint-simonienne, Economie politique et
Politique, Paris, 1831,' p. 104.)

14 Marx would surely have modified this passage considerably, had he
reworked his manuscript. It was inspired by the role of the ex-followers
of Saint-Simon under France's Second Empire, where, just at the time that
Marx wrote the above, the world-redeeming credit fantasies of this school,
through the irony of history, were being realised in the form of a tremen¬
dous swindle on a scale never seen before. Later Marx spoke only with admi¬
ration of the genius and encyclopaedic mind of Saint-Simon. When in his
earlier works the latter ignores the antithesis between the bourgeoisie and
the proletariat which was just then coming into existence in France, when
he includes among the travailleurs that part of the bourgeoisie which was
active in production, this corresponds to Fourier’s conception of attempting
to reconcile capital and labour and is explained by the economic and politi¬
cal situation of France in those days. The fact that Owen was more far-sight¬
ed in this respect is due to his different environment, for he lived in a period
of industrial revolution and of acutely sharpening class antagonisms. —
F. E.

606

DIVISION OF PROFIT

more easily mistaken in their choice of borrowers” (p. 202).
But the authors themselves add in a footnote: “The advantage
that would accrue from the mediation of bankers between the
idle rich and the travailleurs is often counterbalanced, or even
cancelled, by the opportunities offered in our disorganised society
to egoism, which may manifest itself in various forms of fraud
and charlatanism. The bankers often worm their way between
the travailleurs and idle rich for the purpose of exploiting both
to the detriment of society.” Travailleur here means capitaliste
induslriel. Incidentally, it is wrong to regard the means at the
command of the modern banking system merely as the means
of idle people. In the first place, it is the portion of capital which
industrialists and merchants temporarily hold in the form of
idle money, as a money reserve or as capital to be invested.
Hence it is idle capital, but not capital of the idle. In the second
place, it is the portion of all revenue and savings in general which
is to be temporarily or permanently accumulated. Both are
essential to the nature of the banking system.

But it should always be borne in mind that, in the first place,
money — in the form of precious metal — remains the foundation
from which the credit system, by its very nature, can never
detach itself. Secondly, that the credit system presupposes the
monopoly of social means of production by private persons (in
the form of capital and landed property), that it is itself, on the
one hand, an immanent form of the capitalist mode of production,
and on the other, a driving force in its development to its highest
and ultimate form.

The banking system, so far as its formal organisation and
centralisation is concerned, is the most artificial and most devel¬
oped product turned out by the capitalist mode of production,
a fact already expressed in 1697 in Some Thoughts of the Interests
of England. This accounts for the immense power of an institu¬
tion such as the Bank of England over commerce and industry,
although their actual movements remain completely beyond its
province and it is passive toward them. The banking system
possesses indeed the form of universal book-keeping and distri¬
bution of means of production on a social scale, but solely the
form. We have seen that the average profit of the individual
capitalist, or of every individual capital, is determined not by
the surplus-labour appropriated at first hand by each capital,
but by the quantity of total surplus-labour appropriated by the
total capital, from which each individual capital receives its
dividend only proportional to its aliquot part of the total capital.

PRE-CAPITALIST RELATIONSHIPS

607

This social character of capital is first promoted and wholly
realised through the full development of the credit and banking
system. On the other hand this goes farther. It places all the
available and even potential capital of society that is not already
actively employed at the disposal of the industrial and commer¬
cial capitalists so that neither the lenders nor users of this capital
are its real owners or producers. It thus does away with the
private character of capital and thus contains in itself, but only
in itself, the abolition of capital itself. Bymeans of the banking
system the distribution of capital as a special business, a social
function, is taken out of the hands of the private capitalists and
usurers. But at the same time, banking and credit thus become
the most potent means of driving capitalist production beyond
its own limits, and one of the most effective vehicles of crises and
swindle.

The banking system shows, furthermore, by substituting vari¬
ous forms of circulating credit in place of money, that money is
in reality nothing but a particular expression of the social char¬
acter of labour and its products, which, however, as antithetical
to the basis of private production, must always appear in the
last analysis as a thing, a special commodity, alongside other
commodities.

Finally, there is no doubt that the credit system will serve
as a powerful lever during the transition from the capitalist
mode of production to the mode of production of associated
labour; but only as one element in connection with other great
organic revolutions of the mode of production itself. On the
other hand, the illusions concerning the miraculous power of
the credit and banking system, in the socialist sense, arise from
a complete lack of familiarity with the capitalist mode of produc¬
tion and the credit system as one of its forms. As soon as the
means of production cease being transformed into capital (which
also includes the abolition of private property in land), credit
as such no longer has any meaning. This, incidentally, was
even understood by the followers of Saint-Simon. On the other
hand, as long as the capitalist mode of production continues
to exist, interest-bearing capital, as one of its forms, also con¬
tinues to exist and constitutes in fact the basis of its credit system.
Only that sensational writer, Proudhon, who wanted to per¬
petuate commodity-production and abolish money,25 was capable

15 Karl Marx, Mitire de la Philosophie, Bruxelles et Paris, 1847. — Karl
Marx, Zur Kritik der polltlsehen Oekonomie, S. 64.

608

DIVISION OF PROFIT

of dreaming up the monstrous credit gratuit, the osten¬
sible realisation of the pious wish of the petty-bourgeois es¬
tate.

In Religion saint-simonienne, Economie politique et Politique,
we read on page 45: “Credit serves the purpose, in a society in
which some own the instruments of industry without the ability
or will to employ them, and where other industrious people have
no instruments of labour, of transferring these instruments in
the easiest manner possible from the hands of the former, their
owners, to the hands of the others who know how to use them.
Note that this definition regards credit as a result of the way in
which property is constituted.” Therefore, credit disappears with
this constitution of property. We read, furthermore, on page 98,
that the present banks “consider it their business to follow the
movement initiated by transactions taking place outside of their
domain, but not themselves to provide an impulse to this move¬
ment; in other words, the banks perform the role of capitalists
in relation to the travailleurs, whom they loan money.” The
notion that the banks themselves should take over the manage¬
ment and distinguish themselves “through the number and use¬
fulness of their managed establishments and of promoted works”
(p. 101) contains the credit mobilier in embryo. In the same way,
Charles Pecqueur demands that the hanks (which the followers
of Saint-Simon call a Systeme general des banques) “should rule
production. ” Pecqueur is essentially a follower of Saint-Simon,
but much more radical. He wants “the credit institution ... to
control the entire movement of national production.” — “Try to
create a national credit institution, which shall advance the
wherewithal to needy people of talent and merit, without, how¬
ever, forcibly tying these borrowers together through close soli¬
darity in production and consumption, but on the contrary enabl¬
ing them to determine their own exchange and production. In
this way, you will only accomplish what the private banks
already accomplish now, that is, anarchy, disproportion between
production and consumption, the sudden ruin of one person,
and the sudden enrichment of another; so that your institution
will never get any farther than producing a certain amount of
benefits for ond person, corresponding to an equivalent amount
of misfortune to be endured by another ... and you will have only
provided the wage-labourers assisted by you with the means to
compete with one another just as their capitalist masters now
do.” (Gh. Pecqueur, Theorie Nouvelle d' Economic Sociale et
Politique, Paris, 1842, p. 434.)

PRE-CAPITALIST RELATIONSHIPS

609

We have seen that merchant’s capital and interest-bearing
capital are the oldest forms of capital. But it is in the nature of
things that interest-bearing capital assumes in popular concep¬
tion the form of capital par excellence. In merchant's capital
there takes place the woik of middleman, no matter whether
considered as cheating, labour, or anything else. But in the case
of interest-bearing capital the self-reproducing character of
capital, the self-expanding value, the production of surplus-
value, appears purely as an occult property. This accounts for
the fact that even some political economists, particularly in
countries where industrial capital is not yet fully developed,
as in France, cling to interest-bearing capital as the fundamental
form of capital and regard ground-rent, for example, merely
as a modified form of it, since the loan-form also predominates
here. In this way, the internal organisation of the capitalist
mode of production is completely misunderstood, and the fact
is entirely overlooked that land, like capital, is loaned only
to capitalists. Of course, means of production in kind, such as
machines and business offices, can also be loaned instead of
money. But they then represent a definite sum of money, and the
fact that in addition to interest a part is paid for wear and tear
is due to their use-value, i.e., the specific natural form of these
elements of capital. The decisive factor here is again whether
they are loaned to direct producers, which would presuppose
the non-existence of the capitalist mode of production — at least
in the sphere in which this occurs — or whether they are loaned
to industrial capitalists, which is precisely the assumption based
upon the capitalist mode of production. It is still more irrele¬
vant and meaningless to drag the lending of houses, etc., for
individual use into this discussion. That the working-class is
also swindled in this form, and to an enormous extent, is self-
evident; but this is also done by the retail dealer, who sells means
of subsistence to the worker. This is secondary exploitation,
which runs parallel to the primary exploitation taking place in
the production process itself. The distinction between selling and
loaning is quite immaterial in this case and merely formal, and,
as already indicated,* cannot appear as essential to anyone, unless
he be wholly unfamiliar with the actual nature of the problem.

Usury, like commerce, exploits a given mode of production.
It does not create it, but is related to it outwardly. Usury tries

* Present edition: pp. 345-50. — Ed.

610

DIVISION OF PROFIT

to maintain it directly, so as to exploit it ever anew; it is conserv¬
ative and makes this mode of production only more pitiable.
The less elements of production enter into the production process
as commodities, and emerge from it as commodities, the more
does their origination from money appear as a separate act.
The more insignificant the role played by circulation in the social
reproduction, the more usury flourishes.

That money wealth develops as a special kind of wealth, means
in respect to usurer's capital that it possesses all its claims in
the form of money claims. It develops that much more in a given
country, the more the main body of production is limited to
natural services, etc., that is, to use-values.

Usury is a powerful lever in developing the preconditions
for industrial capital in so far as it plays the following double
role, first, building up, in general, an independent money wealth
alongside that of the merchant, and, secondly, appropriating the
conditions of labour, that is, ruining the owners of the old con¬
ditions of labour.

INTEREST IN THE MIDDLE AGES

“In the Middle Ages the population was purely agricultural.
Under such a government as was the feudal system there can be
but little traffic, and hence but little profit. Hence the laws
against usury were justified in the Middle Ages. Besides, in an
agricultural country a person seldom wants to borrow money
except he be reduced to poverty or distress.... In the reign of
Henry VIII, interest was limited to 10 per cent. James I reduced
it to 8 per cent. ... Charles II reduced it to 6 per cent; in the
reign of Queen Anne, it was reduced to 5 per cent.... In those
times, the lenders ... had, in fact, though not a legal, yet an
actual monopoly, and hence it was necessary that they, like
other monopolists, should be placed under restraint. In our
times, it is the rate of profit which regulates the rate of interest.
In those times, it was the rate of interest which regulated the
rate of profit. If the money-lender charged a high rate of interest
to the merchant, the merchant must have charged a higher rate
of profit on his goods. Hence, a large sum of money would be
taken from the pockets of the purchasers to be put into the pockets
of the money-lenders.” (Gilbart, History and Principles of Bank¬
ing, PP- 163, 164; 165.)

PRE-CAPITALIST RELATIONSHIPS

611

“I have been told that 10 gulden are now taken annually at
every Leipzig Fair,* that is, 30 on each hundred; some add the
Neuenburg Fair, thus making 40 per hundred; whether that is
so, I don’t know. For shamel What will be the infernal out¬
come of this?... Whoever now has 100 florins at Leipzig, takes
40 annually, which is the same as devouring one peasant or
burgher each year. If one has 1,000 florins, he takes 400 annually,
which means devouring a knight or a rich nobleman per year.
If one has 10,000 florins, he takes 4,000 per year, which means
devouring a rich count each year. If one has 100,000 florins, as
the big merchants must possess, he takes 40,000 annually, which
means devouring one affluent prince each year. If one has
1,000,000 florins, he takes 400,000 annually, which means devour¬
ing one mighty king every year. And he does not risk either his
p'erson or his wares, does not work, sits near his fire-place and
roasts apples; so might a lowly robber sit at home and devour
a whole world in ten years. ” (Quoted from Bucher vom Kaufhandel
und Wucher vom Jahre 1524, Luther’s Werke, Wittenberg, 1589,
Teil 6, S. 312.)

“Fifteen years ago I took pen in hand against usury, when it
had spread so alarmingly that I could scarcely hope for any
improvement. Since then it has become so arrogant that it deigns
not to be classed as vice, sin, or shame, but achieves praise as
pure virtue and honour, as though it were performing a great
favour and Christian service for the people. What will help deliver
us now that shame has turned into honour and vice into virtue? ”
(Martin Luther, An die Pfarherrn wider den Wucher zu predigen ,
Wittenberg, 1540.)

“Jews, Lombards, usurers and extortioners were our first
bankers, our primitive traffickers in money, their character
little short of infamous _ They were joined by London gold¬

smiths. As a body ... our primitive bankers ... were a very bad
set, they were gripping usurers, iron-hearted extortioners.”
(D. Hardcastle, Banks and Bankers, 2nd ed., London, 1843, pp. 19,
20.)

“The example shown by Venice (in establishing a bank) was
thus quickly imitated; all sea-coast towns, and in general all

* The author has in mind the loan of 100 gulden with interest payable
in three instalments at the Leipzig Fair, held three times annually: New
Year’s, Easter and St. Michael’s Day. — Ed.

612

DIVISION OF PROFIT

towns which had earned fame through their independence and
commerce, founded their first banks. The return voyage of their
ships, which often was of long duration, inevitably led to the
custom of lending on credit. This was further intensified by the
discovery of America and the ensuing trade with that continent. ”
(This is the main point.) The chartering of ships made large
loans necessary — a procedure already obtaining in ancient Athens
and Greece. In 1308, the Hanse town of Bruges possessed an insur¬
ance company. (M. Augier, 1. c., pp. 202, 203.)

To what extent the granting of loans to landowners, and thus
to the pleasure-seeking wealthy in general, still prevailed in the
last third of the 17th century, even in England, before the devel¬
opment of modern credit, may be seen, among others, in the
works of Sir Dudley North. He was not only one of the first
English merchants, but also one of the most prominent theo¬
retical economists of his time: “The moneys employed at interest
in this nation, are not near the tenth part, disposed to trading
people, wherewith to manage their trades; but are for the most
part lent for the supplying of luxury, and to support the expense
of persons, who though great owners of lands, yet spend faster
than their lands bring in; and being loath to sell, choose rather
to mortgage their estates.” ( Discourses upon Trade, London,
1691, pp. 6-7.)

Poland in the 18th century: “Warsaw carried on a large bustling
business in bills of exchange which, however, had as its prin¬
cipal basis and aim the usury of its bankers. In order to secure
money, which they could lend to spendthrift gentry at 8% and
more, they sought and obtained abroad open exchange credit,
that is, credit that had no commodity trade as its basis, but
which the foreign drawee continued to accept as long as the returns
from these manipulations did not fail to come in. However,
they paid heavily for this through bankruptcies of men like
Tapper and other highly respected Warsaw bankers. ” (J. G. Busch,
Theoretisch-praktische Darstellung der Handlung, etc., 3rd ed.,
Hamburg, 1808, Vol. II, pp. 232, 233.)

ADVANTAGES DERIVED BY THE CHURCH
FROM THE PROHIBITION OF INTEREST

“Taking interest had been interdicted by the Church. But
selling property for the purpose of finding succour in distress had
not been forbidden. It had not even been prohibited to transfer

PRE-CAPITALIST RELATIONSHIPS

613

property to the money-lender as security for a certain term,
until a debtor repaid his loan, leaving the money-lender free to
enjoy the usufruct of the property as a reward for his abstinence
from his money.... The Church itself, and its associated communes
and pia corpora, derived much profit from this practice, partic¬
ularly during the crusades. This brought a very large portion
of national wealth into possession of the so-called ‘dead hand,'
all the more so because the Jews were barred from engaging in
such usury, the possession of such fixed liens not being conceal-
able.... Without the ban on interest churches and cloisters
would never have become so affluent” (1. c., p. 55).

PART VI

TRANSFORMATION OF SURPLUS-PROFIT
INTO GROUND-RENT

CHAPTER XXXVII

INTRODUCTION

The analysis of landed property in its various historical forms
is beyond the scope of this work. We shall be concerned with it
only in so far as a portion of the surplus-value produced by capi¬
tal falls to the share of the landowner. We assume, then, that
agriculture is dominated by the capitalist mode of production,
just as manufacture is; in other words, that agriculture is carried
on by capitalists who differ from other capitalists primarily in
the manner in which their capital, and the wage-labour set in
motion by this capital, are invested. So far as we are concerned,
the farmer produces wheat, etc., in much the same way as the
manufacturer produces yarn or machines. The assumption that
the capitalist mode of production has encompassed agriculture
implies that it rules over all spheres of production and bourgeois
society, i.e., that its prerequisites, such as free competition
among capitals, the possibility of transferring the latter from
one production sphere to another, and a uniform level of the
average profit, etc., are fully matured. The form of landed prop¬
erty which we shall consider here is a specifically historical one,
a form transformed through the influence of capital and of the
capitalist mode of production, either of feudal landownership, or
of small-peasant agriculture as a means of livelihood, in which
the possession of the land and the soil constitutes one of the
prerequisites of production for the direct producer, and in which
his ownership of land appears as the most advantageous condition
for the prosperity of his mode of production. Just as the capital¬
ist mode of production in general is based on the expropriation
of the conditions of labour from the labourers, so does it in agri¬
culture presuppose the expropriation of the rural labourers from

INTRODUCTION

615

the land and their subordination to a capitalist, who carries
on agriculture for the sake of profit. Thus, for the purpose of
our analysis, the objection that other forms of landed property
and of agriculture have existed, or still exist, is quite irrelevant.
Such an objection can only apply to those economists who treat
the capitalist mode of production in agriculture, and the form
of landed property corresponding to it, not as historical but
rather as eternal categories.

For our purposes it is necessary to study the modern form of
landed property, because our task is to consider the specific
conditions of production and circulation which arise from the
investment of capital in agriculture. Without this, our analysis
of capital would not be complete. We therefore confine ourselves
exclusively to the investment of capital in agriculture itself, that
is, in producing the principal agricultural crop which feeds
a given people. We can use wheat for this purpose, because it
is the principal means of subsistence in modem capitalistically
developed nations. (Or, instead of agriculture, we can use mining
because the laws are the same for both.)

One of the big contributions of Adam Smith was to have shown
that ground-rent for capital invested in the production of such
agricultural products as flax and dye-stuffs, and in independent
cattle-raising, etc., is determined by the ground-rent obtained
from capital invested in the production of the principal article
of subsistence.* Ia fact, no further progress has been made in
this regard since then. Any limitations or additions would belong
in an independent study of landed property, not here. Hence,
we shall not speak of landed property ex professo — in so far as it
does not refer to land destined for wheat production — but shall
merely refer to it on occasion by way of illustration.

It should be noted for the sake of completeness that we also
include water, etc., in the term land, in so far as it belongs to
someone as an accessory to the land.

Landed property is based on the monopoly by certain persons
over definite portions of the globe, as exclusive spheres of their
private will to the exclusion of all others. 28 With this in mind.

• Smith, An Inquiry into the Nature and Causes of the Wealth of Nations,
Aberdeen, London, 1848, pp. 105-16.— Ed.

" Nothing could be more comical than Hegel's development of private
landed property. According to this, man as an individual must endow his
will with reality as the soul of external nature, and must therefore take pos¬
session of this nature and make it his private property. If this were the des¬
tiny of the “ individual , ” of man as an individual, it would follow that every

016 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

the problem is to ascertain the economic value, that is, the
realisation of this monopoly on the basis of capitalist production.
With the legal power of these persons to use or misuse certain
portions of the globe, nothing is decided. The use of this power
depends wholly upon economic conditions, which are independent
of their will. The legal view itself only means that the landowner
can do with the land what every owner of commodities can do
with his commodities. And this view, this legal view of free
private ownership of land, arises in the ancient world only with
the dissolution of the organic order of society, and in the modem
world only with the development of capitalist production. It
has been imported by Europeans to Asia only here and there.
In the section dealing with primitive accumulation (Buch I,
Kap. XXIV*), we saw that this mode of production presupposes,
on the one hand, the separation of the direct producers from
their position as mere accessories to the land (in the form of
vassals, serfs, slaves, etc.), and, on the other hand, the expro¬

human being must be a landowner, in order to become a real individual.
Free private ownership of land, a very recent product, is, according to
Hegel, not a definite social relation, but a relation of man as an individual
to “nature,” an absolute right of man to appropriate all things (Hegel,
Phtlo$ophte des Rechtt, Berlin, 1840, S. 79). Tnis much, at least, is evident:
the individual cannot maintain himself as a landowner by his mere “will”
against the will of another individual, who likewise wants to become a real
individual by virtue of the same strip of land. It definitely requires some¬
thing other than goodwill. Furthermore, it is absolutely impossible to
determine where the “individual” draws the line for realising his will—
whether this will requires for its realisation a whole country, or whether it
requires a whole group of countries by whose appropriation ‘the supremacy
of my will over the thing can be manifested. " Here Hegel comes to a com¬
plete impasse. “The appropriation is of a very particular kind; 1 do not take
possession of more than I touch with my body; but it is clear, on the other
hand, that external things are more extensive than I can grasp. By thus
having possession of such a thing, some other is thereby connected to it.
I carry out the act of appropriation by means of my hand, but its scope can
be extended” (p. 90). But this other thing is again linked with still another,
and so. the boundary within which my will, as the soul, can pour into the
soil, disappears. “When I possess something, my mind at once passes over
to the idea that not only this property in my immediate possession, but what
Is associated with it is also mine. Here positive right must decide, for nothing
more can be deduced from the concept” (p. 91). This is an extraordinarily
naive admission “of the concept, ” ana proves that this concept which makes
the blunder at the very outset of regarding as absolute a very definite legal
view of landed property — belonging to bourgeois society — understands
“nothing” of the actual nature of this landed property. This contains at the
same time the admission that “positive right” can, and must, alter its deter¬
minations as the requirements of social, i.e., economic, development change.

• English edition: Part VIII.— Ed.

INTRODUCTION

617

priation of the mass of the people from the land. To this extent
the monopoly of landed property is a historical premise, and
continues to remain the basis of the capitalist mode of production,
just as in all previous modes of production which are based on
the exploitation of the masses in one form or another. But the
form of landed property with which the incipient capitalist mode
of production is confronted does not suit it. It first creates for
itself the form required by subordinating agriculture to capital.
It thus transforms feudal landed property, clan property, small-
peasant property in mark communes— no matter how divergent
their juristic forms may be — into the economic form corresponding
to the requirements of this mode of production. One of the major
results of the capitalist mode of production is that, on the one
hand, it transforms agriculture from a mere empirical and mechan¬
ical self-perpetuating process employed by the least developed
part of society into the conscious scientific application of agron¬
omy, in so far as this is at all feasible under conditions of private
property;” that it divorces landed property from the relations
of dominion and servitude, on the one hand, and, on the other,

a7 Very conservative agricultural chemists, such as Johnston, admit
that a really rational agriculture is confronted everywhere with insurmount¬
able barriers stemming from private property. So do writers who are ex
profesto advocates of the monopoly of private property in the world, for
instance, Charles Comte in his two-volume work, which has as its special
aim the defence of private property. “A nation,” he says, “cannot attain to
the degree of prosperity ana power compatible with its nature, unless every
portion of the soil nourishing it is assigned to that purpose which agrees
oest with the general interest. In order to give to its wealth a strong develop¬
ment, one sole and above all highly enlightened will should, if possible,
take it upon itself to assign each piece of its domain its task and make every
piece contribute to the prosperity of all others. But the existence of such
a will ... would be incompatible with the division of the land into private
plots ... and with the authority guaranteed each owner to dispose of his
property in an almost absolute manner.” [“Traile de la propriety ," Tome I,
Paris, 1834, p. 228.— Ed. ]— Johnston, Comte, and others, only have in mind
the necessity of tilling the land of a certain country as a whole, when they
speak of a contradiction between property and a rational system of
agronomy. But the dependence of the cultivation of particular agricultural
products upon the fluctuations of market-prices, and the continual changes
in this cultivation with these price fluctuations — the whole spirit of capi¬
talist production, which is directed toward the immediate gain of money —
are in contradiction to agriculture, which has to minister to the entire range
of permanent necessities of life required by the chain of successive genera¬
tions. A striking illustration of this is furnished by the forests, which are only
rarely managed in a way more or less corresponding to the interests of society
as a whole, i.e., when they are not private property, but subject to the
control of the state.

618 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

totally separates land as an instrument of production from landed
property and landowner — for whom the land merely represents
a certain money assessment which he collects by virtue of his
monopoly from the industrial capitalist, the capitalist farmer;
it dissolves the connection between landownership and the land
so thoroughly that the landowner may spend his whole life in
Constantinople, while his estates lie in Scotland. Landed property
thus receives its purely economic form by discarding all its
former political and social embellishments and associations,
in brief all those traditional accessories, which are denounced,
as we shall see later, as useless and absurd superfluities by the
industrial capitalists themselves, as well as their theoretical
spokesmen, in the heat of their struggle with landed property.
The rationalising of agriculture, on the one hand, which makes
it for the first time capable of operating on a social scale, and
the reduction ad absurdum of property in land, on the other, are
the great achievements of the capitalist mode of production. Like
all of its other historical advances, it also attained these by first
completely impoverishing the direct producers.

Before we proceed to the problem itself, several more prelim¬
inary remarks are necessary to avoid misunderstanding.

The prerequisites for the capitalist mode of production therefore
are the following: The actual tillers of the soil are wage-labourers
employed by a capitalist, the capitalist farmer who is engaged
in agriculture merely as a particular field of exploitation for
capital, as investment for his capital in a particular sphere of
production. This capitalist farmer pays the landowner, the owner
of the land exploited by him, a sum of money at definite periods
fixed by contract, for instance, annually (just as the borrower of
money-capital pays a fixed interest), for the right to invest his
capital in this specific sphere of production. This sum of money
is called ground-rent, no matter whether it is paid for agricultural
land, building lots, mines, fishing grounds, or forests, etc. It
is paid for the entire time for which the landowner has contracted
to rent his land to the capitalist farmer. Ground-rent, therefore,
is here that form in which property in land is realised economi¬
cally, that is, produces value. Here, then, we have all three
classes — wage-labourers, industrial capitalists, and landowners
constituting together, and in their mutual opposition, the frame¬
work of modern society.

Capital may be fixed in the land, incorporated in it either in a
transitory manner, as through improvements of a chemical
nature, fertilisation, etc., or more permanently, as in drainage

INTRODUCTION

619

canals, irrigation works, levelling, farm buildings, etc. Else¬
where I have called the capital thus applied to land la terre-
capital.2s It belongs to the category of fixed capital. The interest
on capital incorporated in the land and the improvements thus
made in it as an instrument of production can constitute a part
of the rent paid by the capitalist farmer to the landowner,29 but
it does not constitute the actual ground-rent, which is paid for
the use of the land as such— be it in a natural or cultivated state.
In a systematic treatment of landed property, which is not within
our scope, this part of the landowner’s revenue would have to
be discussed at length. But a few words about it will suffice
here. The more transitory capital investments, which accompany
the ordinary production processes in agriculture, are all made
without exception by the capitalist farmer. These investments,
like cultivation proper in general, improve the land,30 increase
its output, and transform the land from mere material into land-
capital when the cultivation is carried on more or less rationally,
i.e., when it is not reduced to a brutal spoliation of the soil, as
was in vogue, e.g., among the former slave-holders in the United
States; however, the gentlemen landowners secure themselves
against such practice by contract. A cultivated field is worth
more than an uncultivated one of the same natural quality.
The more permanent fixed capital investments, which are incor¬
porated in the soil and used up in a longer period of time, are also
in the main, and in some spheres often exclusively, made by the
capitalist farmer. But as soon as the time stipulated by contract
has expired — and this is one of the reasons why with the develop¬
ment of capitalist production the landowners seek to shorten
the contract period as much as possible — the improvements
incorporated in the soil become the property of the landowner
as an inseparable feature of the substance, the land. In the new

28 Mis'ere de la Philosophte, p. 165. There 1 have made a distinction be¬
tween terre-maliere and terre-capital. “The mere application of further out¬
lays of capital to land already transformed into means of production increases
land as capital without adding anything to land as matter, that is, to the
extent of the land.... Land as capital is no more eternal than any other
capital.... Land as capital is fixed capital; but fixed capital gets used up just
as much as circulating capital.”

28 1 say “can" because under certain circumstances this interest is regulat¬
ed by the law of ground-rent and, therefore, can disappear, as in the case
of competition between virgin lands of great natural fertility.

30 See James Anderson [A Calm Investigation of the Circumstances that
have led to the Present Scarcity of Grain in Britain, London, 1801, pp. 35-36,
38. — Ed. ] and Carey, The Past, the Present, and the Future, Philadelphia,
1848, pp. 129-31. — Ed.

620 transformation of surplus-profit into ground-rent

contract made by the landowner he adds the interest for capital
incorporated in the land to the ground-rent itself. And he does
this whether he now leases the land to the capitalist farmer who
made these improvements or to some other farmer. His rent is
thus inflated; and should he wish to sell his land (we shall see
immediately how its price is determined), its value is now higher.
He sells not merely the land but the improved land, the capital
incorporated in the land for which he paid nothing. Quite aside
from the movements of ground-rent itself, here lies one of the
secrets of the increasing enrichment of landowners, the continu¬
ous inflation of their rents, and the constantly growing money-
value of their estates along with progress in economic develop¬
ment. Thus they pocket a product of social development created
without their help — fruges consumere nati* But this is at the
same time one of the greatest obstacles to a rational development
of agriculture, for the tenant farmer avoids all improvements
and outlays for which he cannot expect complete returns during
the term of his lease. We find this situation denounced as such an
obstacle again and again, not only in the 18th century by James
Anderson, the actual discoverer of the modern theory of rent**
—who was also a practical capitalist farmer and an advanced
agronomist for his time— but also in our own day by opponents
of the present constitution of landed property in England.

A. A. Walton, in his History of the Landed Tenures of Great
Britain and Ireland, London, 1865, says on this score (pp. 96, 97):
“All the efforts of the numerous agricultural associations through¬
out the country must fail to produce any very extensive or really
appreciable results in the real advancement of agricultural
improvement, so long as such improvements mean in a far higher
degree increased value to the estate and rent-roll of the landlord,
than bettering the condition of the tenant farmer or the labourer.
The farmers, generally, are as well aware as either the landlord
or his agent, or even the president of the Agricultural Association,
that good drainage, plenty of manure, and good management,
combined with the increased employment of labour, to thoroughly
cleanse and work the land, will produce wonderful results both in
improvement and production. To do all this, however, consid¬
erable outlay is required, and the farmers are also aware, that

* Horace, Epistles, Book I, Epistles 2, 27. — Ed.

** On I . Anderson's theory of rent see K. Marx, Theorlen uber den Mchr-
wert (K. Marx/F. Engels, Werke, Band 26, 2. Teil, S. 103-05, 110-14, 134-39).
— Ed.

INTRODUCTION

621

however much they may improve the land or enhance its value,
the landlords will, in the long run, reap the principal benefit,
in higher rents and the increased value of their estates.... They
are shrewd enough to observe what those orators [landowners
and their agents speaking at agricultural festivities], by some
singular inadvertence, omit to tell them — namely, that the lion’s
share of any improvements they may make is sure to go into the
pockets of the landlords in the long run.... However much the
former tenant may have improved the farm, his successor will
find that the landlord will always increase the rent in proportion
to the increased value of the land from former improvements.”

In agriculture proper this process does not yet appear quite as
plainly as when the land is used for building purposes. By far
the largest portion of land used in England for building purposes
but not sold as a freehold is leased by the landowners for 99 years
or, if possible, for a shorter term. After the lapse of this period
the buildings fall into the hands of the landowner together with
the land itself. “They [the tenants] are bound to deliver up the
bouse at the expiration of the lease, in good tenantable condi¬
tion, to the great landlord, after having paid an exorbitant ground -
rent up to the expiration of tho lease. No sooner is the lease
expired, than the agent or surveyor will come and examine your
house, and see that you put it into good repair, and then take
possession of it, and annex it to his lord’s domains.... The fact
is, if this system is permitted to be in full operation for any
considerable period longer, the whole of the house property in
the kingdom will be in the hands of the great landlords, as well
as the land. The whole of the West End of London, north and
south from Temple Bar, may be said to belong to about half a
dozen great landlords, all let at enormous rents, and where the
leases have not quite expired they are fast falling due. The same
may be said either more or less of every town in the kingdom.
Nor does this grasping system of exclusion and monopoly stop
even here. Nearly the whole of the dock accommodation in our
seaport towns is by the same process of usurpation in the hands
of the great leviathans of the land” (1. c., pp. 92-93). It is evident
in these circumstances that when the census for England and
Wales in 1861 gives the total population as 20,066,224 and the
number of landlords as 36,032, the proportion of owners to the
number of houses and to population would look completely differ¬
ent if the large landlords were placed on one side and the small
ones on the other.

This illustration of ownership in buildings is important. In

622 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

the first place, it clearly shows the difference between actual
ground-rent and interest on fixed capital incorporated in the land,
which may constitute an addition to ground-rent. Interest on
buildings, like that on capital incorporated in the land by the
tenant in agriculture, falls into the hands of the industrial capital¬
ist, the building speculator, or the tenant, so long as the lease
lasts, and has in itself nothing to do with ground-rent, which
must be paid on stated dates annually for the use of the land.
Secondly, it shows that capital incorporated in the land by others
ultimately passes into the hands of the landlord together with
the land, and that the interest for it inflates his rent.

Some writers, acting either as spokesmen of landlordism and
taking up the cudgels against the attacks of bourgeois economists,
or in an endeavour to transform the capitalist system of produc¬
tion from a system of contradictions into one of “harmonies”,
like Carey, have tried to represent ground-rent, the specific
economic expression of landed property, as identical with in¬
terest. This would eliminate the opposition between landlords
and capitalists. The opposite method was employed in the early
stages of capitalist production. In those days, landed property
was still regarded by popular conception as the pristine and
respectable form of private property, while interest on capital
was decried as usury. Dudley North, Locke and others, therefore,
represented interest on capital as a form analogous to ground-
rent, just as Turgot deduced the justification for interest from
the existence of ground-rent. — Aside from the fact that ground-
rent may, and does, exist in its pure form without any addition
for interest on capital incorporated in the land, those more recent
writers forget that, in this way, the landlord not only receives
interest on other persons’ capital that costs him nothing, but
also pockets this capital of others without recompense. The
justification of landed property, like that of all other forms of
property corresponding to a certain mode of production, is that
the mode of production itself is a transient historical necessity,
and this includes the relations of production and exchange which
stem from it. It is true, as we shall see later, that landed property
differs from other kinds of property in that it appears superfluous
and harmful at a certain stage of development, even from the
point of view of the capitalist mode of production.

Ground-rent may in another form be confused with interest
and thereby its specific character overlooked. Ground-rent as¬
sumes the form of a certain sum of money, which the landlord
draws annually by leasing a certain plot on our planet. We have

INTRODUCTION

623

seen that every particular sum of money may be capitalised,
that is, considered as the interest on an imaginary capital. For
instance, if the average rate of interest is 5%, then an annual
ground-rent of £200 may be regarded as interest on a capital
of £4,000. Ground-rent so capitalised constitutes the purchase
price or value of the land, a category which like the price of labour
is prima facie irrational, since the earth is not the product of
labour and therefore has no value. But on the other hand, a real
relation in production is concealed behind this irrational form.
If a capitalist buys land yielding a rent of £200 annually and
pays £4,000 for it, then he draws the average annual interest of
5% on his capital of £4,000, just as if he had invested this capital
in interest-bearing papers or loaned it directly at 5% interest.
It is the expansion of a capital of £4,000 at 5%. On this assump¬
tion, he would recover the purchase price of his estate through
its revenues in twenty years. In England, therefore, the purchase
price of land is calculated in so many years’ purchase which is
merely another way of expressing the capitalisation of ground-
rent. It is in fact the purchase price — not of the land, but of the
ground-rent yielded by it — calculated in accordance with the
usual interest rate. But this capitalisation of rent assumes the
existence of rent, while rent cannot inversely be derived and
explained from its own capitalisation. Its existence, independent
of its sale, is rather the starting-point for the inquiry.

It follows, then, that the price of land may rise or fall inversely
as the interest rate rises or falls if we assume ground-rent to
be a constant magnitude. If the ordinary interest rate should
fall from 5% to 4%, then the annual ground-rent of £200 would
represent the annual realisation from a capital of £5,000 instead
of £4,000. The price of the same piece of land would thus have
risen from £4,000 to £5,000, or from 20 years’ to 25 years’ pur¬
chase. The converse would take place in the opposite case. This
is a movement of the price of land which is independent of the
movement of ground-rent itself and regulated only by the in¬
terest rate. But as we have seen that the rate of profit has a
tendency to fall in the course of social progress, and, therefore,
the interest rate has the same tendency, so far as it is regulated by
the rate of profit; and that, furthermore, the interest rate shows
a tendency to fall in consequence of the growth of loanable capi¬
tal, apart from the influence of the rate of profit, it follows that
the price of land has a tendency to rise, even independently of
the movement of ground-rent and the prices of the products of
the land, of which rent constitutes a part.

624 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

The confusion of ground-rent itself with the interest form which
it assumes for the buyer of the land — a confusion resulting from
complete lack of familiarity with the nature of ground-rent —
must necessarily lead to the most absurd conclusions. Since
landed property is considered in all ancient countries as a partic¬
ularly genteel form of property, and its purchase also as an emi¬
nently safe capital investment, the interest rate at which ground-
rent is bought is generally lower than that of other long-term
investments of capital, so that a buyer of real estate draws,
for instance, only 4% on his purchase price, whereas he would
draw 5% for the same capital in other investments. In other
words, he pays more capital for ground-rent than he would for
the same annual amount of income from other investments. This
leads Mr. Thiers to conclude in his generally very poor work on
La Propriete (a reprint of his speech in the French National
Assembly in 1849 directed against Proudhon*) that ground-rent
is low, whereas it merely proves that its purchase price is high.

The fact that capitalised ground-rent appears as the price or
value of land, so that land, therefore, is bought and sold like any
other commodity, serves some apologists as a justification for
landed property since the buyer pays an equivalent for it, the
same as for other commodities; and the major portion of landed
property has changed hands in this way. The same reason in that
case would also serve to justify slavery, since the returns from
the labour of the slave, whom the slave-holder has bought, merely
represent the interest on the capital invested in this purchase.
To derive a justification for the existence of ground-rent from
its sale and purchase means in general to justify its existence by
its existence.

As important as it may be for a scientific analysis of ground-
rent — that is, the independent and specific economic form of
landed property on the basis of the capitalist mode of production —
to study it in its pure form free of all distorting and obfuscating
irrelevancies, it is just as important for an understanding of
the practical effects of landed property —even for a theoretical
comprehension of a multitude of facts which contradict the
concept and nature of ground-rent and yet appear as modes of
existence of ground-rent — to learn the sources which give rise to
such muddling in theory.

In practice, naturally, everything appears as ground-rent that

• Proudhon’s speech was published in “Compte rendu des seances de
1’Assemblee Nationale, ” Tome II, Paris, 1849, pp. 666-71.— Ed.

INTRODUCTION

625

is paid as lease money by tenant to landlord for the right to culti¬
vate the soil. No matter what the composition of this tribute
and no matter what its sources, it has this in common with the
actual ground-rent — that the monopoly of the so-called landed
proprietor of a portion of our planet enables him to levy such
tribute and impose such an assessment. It has this in common
with the actual ground-rent — that it determines the price of
land, which, as we have indicated earlier, is nothing but the
capitalised income from the lease of the land.

We have already seen that interest for the capital incorporated
in the land may constitute such an extraneous component of
ground-rent, a component which must become a continually
growing extra charge on the total rent of a country as economic
development progresses. But aside from this interest, it is possible
that the lease money may conceal in part, and in certain cases in
its entirety, i.e., in complete absence of the actual ground -rent —
when the land is, therefore, actually worthless — a deduction
from the average profit or from the normal wages, or both. This
portion, whether of profit or wages, appears here as ground-
rent, because instead of falling to the industrial capitalist or the
wage-worker, as would normally be the case, it is paid to the
landlord in the form of lease money. Economically speaking,
neither the one nor the other of these portions constitutes ground-
rent; but, in practice, it constitutes the landlord’s revenue, an
economic realisation of his monopoly, much as actual ground-
rent, and it has just as determining an influence on land prices.

We are not speaking now of conditions in which ground-rent,
the manner of expressing landed property in the capitalist mode
of production, formally exists without the existence of the capi¬
talist mode of production itself, i.e., without the tenant himself
being an industrial capitalist, nor the type of his management
being a capitalist one. Such is the case, e.g., in Ireland. The
tenant there is generally a small farmer. What he pays to the
landlord in the form of rent frequently absorbs not merely a
part of his profit, that is, his own surplus-labour (to which he is
entitled as possessor of his own instruments of labour), but also
a part of his normal wage, which he would otherwise receive for
the same amount of labour. Besides, the landlord, who does
nothing at all for the improvement of the land, also expropriates
his small capital, which the tenant for the most part incorporates
in the land through his own labour. This is precisely what a
usurer would do under similar circumstances, with just the
difference that the usurer would at least risk his own capital

626 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

in the operation. This continual plunder is the core of the dispute
over the Irish Tenancy Rights Bill. The main purpose of this
Bill is to compel the landlord when ordering his tenant off the
land to indemnify the latter for his improvements on the land,
or for his capital incorporated in the land. Palmerston used to
wave this demand aside with the cynical answer: “The House
of Commons is a house of landed proprietors.”

Nor are we referring to exceptional circumstances in which the
landlord may enforce a high rental — even in countries with capi¬
talist production — that stands in no relation to the yield from
the soil. Of such a nature, for example, is the leasing of small
patches of land to labourers in English factory districts, either
as small gardens or for amateur spare-time farming. (Reports
of Inspectors of Factories.)

We are referring to ground-rent in countries with developed
capitalist production. Among English tenants, for instance,
there are a number of small capitalists who are destined and
compelled by education, training, tradition, competition, and
other circumstances to invest their capital as tenants in agricul¬
ture. They are forced to be satisfied with less than the average
profit, and to turn over part of it to the landlords as rent. This is
the only condition under which they are permitted to invest
their capital in the land, in agriculture. Since landlords every¬
where exert considerable, and in England even overwhelming,
influence on legislation, they are able to exploit this situation
for the purpose of victimising the entire class of tenants. For
instance, the Corn Laws of 1815 — a bread tax, admittedly imposed
upon the country to secure for the idle landlords a continu¬
ation of their abnormally increased rentals during the anti-
Jacobiu war — had indeed the effect, excluding cases of a few
extraordinarily rich harvests, of maintaining prices of agricul¬
tural products above the level to which they would have fallen
had corn imports been unrestricted. But they did not have the
effect of maintaining prices at the level decreed by the law¬
making landlords to serve as normal prices in such manner as
to constitute the legal limit for imports of foreign corn. But
the leaseholds were contracted in an atmosphere created by
these normal prices. As soon as the illusion was dispelled, a new
law was passed, containing new normal prices, which were as
much the impotent expression of a greedy landlord 's fantasy
as the old ones. In this way, tenants were defrauded from 1815
up to the thirties. Hence the standing problem of agricultural
distress during this entire period. Hence the expropriation and

INTRODUCTION

627

the ruin of a whole generation of tenants during this period and
their replacement by a new class of capitalists.81

A much more general and important fact, however, is the
depression of the actual farm-labourer’s wage below its normal
average, so that part of it is deducted to become part of the
lease money and thus, in the guise of ground-rent, it flows into
the pocket of the landlord rather than the labourer. This is, for
example, quite generally the case in England and Scotland,
with the exception of a few favourably situated counties. The
inquiries into the level of wages by the parliamentary investi¬
gating committees, which were appointed before the passage of
the Corn Laws in England — so far the most valuable and almost
unexploited contributions to the history of wages in the 19th
century, and at the same time a pillory erected for themselves
by the English aristocracy and bourgeoisie — proved convincingly
and beyond a doubt that the high rates of rent, and the corre¬
sponding rise in land prices during the anti-Jacobin war, were
due in part to no other cause but deductions from wages and
their depression to a level that was even below the physical
minimum requirement; in other words, to part of the normal
wage being handed over to the landlords. Various circumstances,
such as the depreciation of money and the manipulation of the
Poor Laws in the agricultural districts, had made this operation
possible at a time when the incomes of the tenants were enor¬
mously increasing and the landlords were amassing fabulous
riches. Indeed, one of the main arguments of both tenants and
landlords for the introduction of duties on corn was that it was
physically impossible to depress farm-labourers’ wages any
lower. This state of affairs has not significantly changed, and in
England, as in all European countries, a portion of the normal
wage is absorbed by ground-rent just as ever. When Count Shaftes¬
bury, then Lord Ashley, one of the philanthropic aristocrats,
was so extraordinarily moved by the condition of English factory
operatives and acted as their spokesman in Parliament during
the agitation for a ten-hour day, the spokesmen of the indus¬
trialists took their revenge by publishing wage statistics of
agricultural labourers in the villages belonging to him (see Buch I,

81 See the Anti-Corn Law Prize-Essays. However, the Corn Laws always
kept prices at an artificially higher level. For the better placed tenants this
was favourable. They profited from the passivity in which the protective
duties kept the gTeat mass of tenants who relied, with or without good rea¬
son, on the exceptional average price.

628 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Kap. XXIII, 5, e*) (“The British Agricultural Proletariat”),
which clearly showed that a portion of the ground-rent of this
philanthropist consisted of loot filched for him by his tenants
out of the wages of agricultural labourers. This publication is
also interesting for the fact that its revelations may bravely take
their place beside the worst exposures made by the committees
in 1814 and 1815. As soon as circumstances ‘force a temporary
increase in the wage of agricultural labourers a cry goes up from
the capitalist tenant farmers that raising wages to the normal
level, as done in other branches of industry, would be impossible
and would ruin them, unless ground-rent were reduced at the
same time. Therein lies the confession that under the head of
ground-rent there is a deduction of the labourers' wages which
is handed over to the landlords. For instance, from 1849 to 1859
the wages of agricultural labourers rose in England through
a combination of momentous events: the exodus from Ireland,
which cut off the supply of agricultural labourers coming from
there; an extraordinary absorption of the agricultural population
by factories; a war-time demand for soldiers; an exceptionally
large emigration to Australia and the United States (California),
and other circumstances which need not be dwelt upon here.
At the same time, average prices of grain fell by more than 16%
during this period, with the exception of the poor agricultural
years 1854 to 1856. The tenant farmers clamoured for a reduction
in rents. They were successful in individual cases, but on the
whole failed to achieve this demand. They had recourse to a
reduction of production costs, among other things by the mass
production of steam-engines and new machinery, which to some
extent replaced horses and pushed them out of the economy,
but also brought about, in part, an artificial over-population by
throwing agricultural day-labourers out of work, and thereby
caused a new drop in wages. And this took place in spite of the
overall relative decrease in agricultural population' during that
decade as compared with the growth of total population, and in
spite of an absolute decrease in agricultural population in some
purely agricultural districts.32 Thus Fawcett, then professor of
political economy at Cambridge [who died in 1884 while Post¬
master General ], stated at the Social Science Congress on October

* English edition: Ch. XXV, 5, e. — Ed.

,J John C. Morton, The Forces Used in Agriculture. Lecture in the London
Society of Arts, 1860, based upon authentic documents collected from about
100 tenants in 12 Scottish and 35 English counties.

INTRODUCTION

629

12, 1865: “The labourers were beginning to emigrate, and the
farmers were already beginning to complain that they would
not be able to pay such high rents as they have been accustomed
to pay, because labour was becoming dearer in consequence of
emigration.” Here, then, high ground-rent is directly identified
with low wages. And in so far as the level of land prices is deter¬
mined by this circumstance — increasing rent — a rise in the value
of land is identical with a depreciation of labour, the high price
of land is identical with the low price of labour.

The same is true of France. ‘The rental rises because the prices
of bread, wine, meat, vegetables and fruit rise, on the one hand,
while, on the other hand, the price of labour remains unchanged.
If the older people examine the accounts of their fathers, taking
us back about 100 years, they will find that the price of a day’s
labour in rural France was the same as it is now. The price of
meat has trebled since then.... Who is the victim of this revolu¬
tion? Is it the rich man, who is the proprietor of an estate, or the
poor man who works it?... The increase, in rental is evidence
of a public disaster. ” (Du Mecanisme de la Sociite en France et
en Angleterre, by M. Rubichon, 2nd ed., Paris, 1837, p. 101.)

Illustrations of rent representing deductions, on the one hand,
from average profit and, on the other, from average wages:

Morton,* real estate agent and agricultural mechanic who was
previously quoted, states that it has been observed in many
localities that rent for large estates is lower than for small ones
because “the competition is usually greater for the latter than for
the former, and as few small farmers are able to turn their atten¬
tion to any other business than that of farming, their anxiety to
get a suitable occupation leads them in many instances to give
more rent than their judgement can approve of. ” (John L. Morton,
The Resources of Estates , London, 1858, p. 116.)

However, this difference is supposed to be gradually disappear¬
ing in England; this he attributes largely to the emigration pre¬
cisely of the class of small tenants. The same Morton illustrates
with an example in which clearly the wage of the tenant himself,
and even more surely that of his labourers, suffers a deduction
for ground-rent. This takes place in the case of leaseholds with
less than 70 to 80 acres (30-34 ha.) where a two-horse plough
cannot be maintained. “Unless the tenant works with his own
hands as laboriously as any labourer, his farm will not keep him.
If he entrusts the performance of his work to workmen while

* Here Marx quotes John Lockart Morton. — Ed.

21—2494

630 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

he continues merely to observe them, the chances are, that at
no distant period, he will find he is unable to pay his rent”
(1. c., p. 118). Morton concludes, therefore, that unless the
tenants of a certain locality are very poor, the leaseholds should
not be smaller than 70 acres, so that the tenants may keep two
or three horses.

Extraordinary sagacity on the part of Monsieur Leonce de
Lavergne, Membre de I'Institut et de la Societe Centrale d' Agri¬
culture. In his Economic Rurale de I'Angleterre (quoted from the
English translation, London, 1855), he makes the following
comparison of the annual advantage derived from cattle which
is employed in France but not in England where it is replaced
by horses (p. 42):

FRANCE: Milk .... 6 4 million ENGLAND: Milk . . . £ 16 million
Meat .... £ 16 million Meat ... £ 20 million

Labour . . £ 8 million Labour . . —

£ 28 million £ 36 million

But the greater total for England is obtained here because
according to his own testimony milk is twice as expensive in
England as in France whereas he assumes the same prices for
meat in both countries (p. 35); therefore, English milk production
shrinks to £8 million and the total to £28 million, which is the
same as in France. It is indeed rather too much when Mr. Lavergne
allows the quantities and price differences to enter simultaneously
into his calculations so that when England produces certain
articles more dearly than France, this appears to be an advantage
of English agriculture, whereas at best it signifies a larger profit
for the tenants and landlords.

That Mr. Lavergne is not only familiar .with the economic
achievements of English agriculture, but also subscribes to the
prejudices of the English tenants and landlords, is shown on page
48: “One great drawback attends cereals generally ... they exhaust
the soil which bears them.” Not only does Mr. Lavergne believe
that other plants do not do so, but also believes that fodder
crops and root crops enrich the soil: “Forage plants derive from
the atmosphere the principal elements of their growth, while
they give to the soil more than they take from it; thus both
directly and by their conversion into animal manure contributing
in two ways to repair the mischief done by cereals and exhausting
crops generally; one principle, therefore, is that they should at

INTRODUCTION

631

least alternate with these crops; in this consists the Norfolk
rotation” (pp. 50, 51).

No wonder that Mr. Lavergne, who believes these English
rustic fairy-tales, also believes that the wages of English farm-
labourers have lost their former abnormality since the duties
on corn have been lifted. (See what has been previously said on
this point. Buch I, Rap. XXIII, 5, pp. 701 to 729.*) But let us
also listen to Mr. John Bright’s speech in Birmingham, Decem¬
ber 14, 1865. After mentioning the 5 million families entirely
unrepresented in Parliament, he continues: “There is among
them one million, or rather more than one million, in the United
Kingdom who are classed in the unfortunate list of paupers.
There is another million just above pauperism, but always in
peril lest they should become paupers. Their condition and
prospects are not more favourable than that. Now look at the
ignorant and lower strata of this portion of the community.
Look to their abject condition, to their poverty, to their suffering,
to their utter hopelessness of any good. Why, in the United
States— even in the Southern States during the reign of slavery —
e\ery Negro had an idea that there was a day of jubilee for him.
But to these people — to this class of the lowest strata in this
country— I am here to state that there is neither the belief of
anything better nor scarcely an aspiration after it. Have you
read a paragraph which lately appeared in the newspapers about
John Cross, a Dorsetshire labourer? He worked six days in the
week, had an excellent character from his employer for whom he
had worked twenty-four years at the rate of eight shillings per
week. John Cross had a family of seven children to provide for
out of these wages in his hovel — for a feeble wife and an infant
child. He took — legally, I believe he stole — a wooden hurdle
of the value of sixpence. For this offence he was tried before
the magistrates and sentenced to or 20 days’ imprisonment....
I can tell you that many thousands of cases like that of John
Cross are to be found throughout the country, and especially in
the south, and that their condition is such that hitherto the most
anxious investigator has been unable to solve the mystery as to
how they keep body and soul together. Now cast your eye over
the country and look at these five million of families and the
desperate condition of this strata of them. Is it not true that the
unenfranchised nation may be said to toil and toil and knowing
almost no rest? Compare it with the ruling class — but if I do

21*

English edition: Ch. XXV, 5, pp. 673-96. — Ed.

632 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

I shall be charged with communism.... But compare this great
toiling and unenfranchised nation with the section who may be
considered the governing classes. Look at its wealth; look at
its ostentation — look at its luxury. Behold its weariness — for
there is weariness amongst them, but it is the weariness of
satiety — and see how they rush from place to place, as it were,
to discover some new pleasure.” ( Morning Star, December 14,
1865.)

It is shown in what follows how surplus-labour, and conse¬
quently surplus-product, is generally confused with ground-rent —
that qualitatively and quantitatively specifically determined, at
least on the basis of the capitalist mode of production, part of
the surplus-product. The natural basis of surplus-labour in gen¬
eral, that is, a natural prerequisite without which such labour
cannot be performed, is that Nature must supply — in the form
of animal or vegetable products of the land, in fisheries, etc. —
the necessary means of subsistence under conditions of an expend¬
iture of labour which does not consume the entire working-
day. This natural productivity of agricultural labour (which
includes here the labour of simple gathering, hunting, fishing
and cattle-raising) is the basis of all surplus-labour, as all labour
is primarily and initially directed toward the appropriation and
production of food. (Animals also supply at the same time skins
for warmth in colder climates; also cave-dwellings, etc.)

The same confusion between surplus-product and ground-rent
is found differently expressed by Mr. Dove.* Originally agricul¬
tural and industrial labour were not separated; the latter was an
adjunct of the former. The surplus-labour and the surplus-product
of the land-cultivating tribe, house commune, or family included
both agricultural and industrial labour. Both went hand in hand.
Hunting, fishing and agriculture were impossible without suitable
tools. Weaving, spinning, etc., were first carried on as an agrarian
side line.

We have previously shown that just as the labour of an in¬
dividual workman breaks up into necessary and surplus-labour,
the aggregate labour of the working-class may be so divided that
the portion which produces the total means of subsistence for the
working-class (including the means of production required for this
purpose) performs the necessary labour for the whole of society.
The labour performed by the remainder of the working-class

* P. Dove, The Elements of Political Science, Edinburgh, 1854, pp. 264,
273. — Ed.

INTRODUCTION

633

may then be regarded as surplus-labour. But the necessary labour
consists by no means only of agricultural labour, but also of
that labour which produces all other products necessarily includ¬
ed in the average consumption of the labourer. Furthermore,
from the social standpoint, some perform only necessary labour
because others perform only surplus-labour, and vice versa. It
is but a division of labour between them. The same holds for
the division of labour between agricultural and industrial la¬
bourers in general. The purely industrial character of labour,
on the one hand, corresponds to the purely agricultural character
on the other. This purely agricultural labour is by no means natu¬
ral, but is rather a product — and a very modern one at that, which
has not yet been achieved everywhere — of social development —
and corresponds to a very definite stage of the development of
production. Just as a portion of agricultural labour is material¬
ised in products which either minister only to luxury or serve as
raw materials in industry, but by no means serve as food, let
alone as food for the masses, so on the other hand a portion of
industrial labour is materialised in products which serve as
necessary means of consumption for both agricultural and non-
agricultural labourers. It is a mistake, from a social point of view,
to regard this industrial labour as surplus-labour. It is, in part,
as much necessary labour as the necessary portion of the agricul¬
tural labour. It is also but a form rendered independent of a part
of industrial labour which was formerly naturally connected with
agricultural labour, a necessary mutual supplement to the
specifically agricultural labour now separated from it. (From a
purely material point of view, 500 mechanical weavers, e.g.,
produce surplus-fabrics to a far greater degree, that is, more
than is required for their own clothing.)

Finally, it should be borne in mind in considering the various
forms of manifestation of ground-rent, that is, the lease money
paid under the heading of ground-rent to the landlord for the
use of the land for purposes of production or consumption, that
the price of things which have in themselves no value, i.e., are
not the product of labour, such as land, or which at least cannot
be reproduced by labour, such as antiques and works of art by
certain masters, etc., may be determined by many fortuitous
combinations. In order to sell a thing, nothing more is required
than its capacity to be monopolised and alienated.

There are three main errors to be avoided in studying ground-
rent, and which obscure its analysis.

634 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

1) Confusing the various forms of rent pertaining to different
stages of development of the social production process.

Whatever the specific form of rent may be, all types have this
in common: the appropriation of rent is that economic form in
which landed property is realised, and ground-rent, in turn, pre¬
supposes the existence of landed property, the ownership of
certain portions of our planet by certain individuals. The owner
may be an individual representing the community, as in Asia,
Egypt, etc.; or this landed property may be merely incidental to
the ownership of the immediate producers themselves by some in¬
dividual as under slavery or serfdom; or it may be a purely pri¬
vate ownership of Nature by non-producers, a mere title to land;
or, finally, it may be a relationship to the land which, as in the
case of colonists and small peasants owning land, seems to be
directly included — in the isolated and not socially developed
labour — -in the appropriation and production of the products of
particular plots of land by the direct producers.

This common element in the various forms of rent, namely that
of being the economic realisation of landed property, of legal fic¬
tion by grace of which certain individuals have an exclusive right
to certain parts of our planet— makes it possible for the differ¬
ences to escape detection.

2) All ground-rent is surplus-value, the product of surplus-la¬
bour. In its undeveloped form as rent in kind it is still directly
the surplus-product itself. Hence, the mistaken idea that the
rent corresponding to the capitalist mode of production — which
is always a surplus over and above profit, i.e., above a value
portion of commodities which itself consists of surplus-value
(surplus-labour) — that this special and specific component of
surplus-value is explained by merely explaining the general
conditions for the existence of surplus-value and profit in general.
These conditions are: the direct producers must work beyond
the time necessary for reproducing their own labour-power, for
their own reproduction. They must perform surplus-labour in
general. This is the subjective condition. The objective condition
is that they must be able to perform surplus-labour. The natural
conditions must be such that a part of their available iabour-
time suffices for their reproduction and self-maintenance as pro¬
ducers, that the production of their necessary means of subsist¬
ence shall not consume their whole labour-power. The fertility
of Nature establishes a limit here, a starting-point, a basis. On
the other hand, the development of the social productive power
of their labour forms the other limit. Examined more closely,

INTRODUCTION

635

since the production of means of subsistence is the very first
condition of their existence and of all production in general,
labour used in this production, that is, agricultural labour in
the broadest economic sense, must be fruitful enough so as not to
absorb the entire available labour-time in the production of means
of subsistence for the direct producers, that is, agricultural sur¬
plus-labour and therefore agricultural surplus-product must be
possible. Developed further, the total agricultural labour, both
necessary and surplus labour, of a segment of society must suffice
to produce the necessary subsistence for the whole of society, that
is, for non-agricultural labourers too. This means therefore that
the major division of labour between agricultural and industrial
must be possible; and similarly between tillers of the soil produc¬
ing means of subsistence and those producing raw materials.
Although the labour of the direct producers of means of subsist¬
ence breaks up into necessary and surplus labour as far as they
themselves are concerned, it represents from the social stand¬
point only the necessary labour required to produce the means
of subsistence. Incidentally, the same is true for all division of
labour within society as a whole, as distinct from the division
of labour within individual workshops. It is the labour neces¬
sary for the production of particular articles, for the satisfaction
of some particular need of society for these particular articles.
If this division is proportional, then the products of various
groups are sold at their values (at a later stage of development
they are sold at their prices of production), or at prices which are
certain modifications of these values or prices of production deter¬
mined by general laws. It is indeed the effect of the law of value,
not with reference to individual commodities or articles, but
to each total product of the particular social spheres of produc¬
tion made independent by the division of labour; so that not
only is no more than the necessary labour-time used up for each
specific commodity, but only the necessary proportional quantity
of the total social labour-time is used up in the various groups.
For the condition remains that the commodity represents use-
value. But if the use-value of individual commodities depends
on whether they satisfy a particular need then the use-value
of the mass of the social product depends on whether it satisfies
the quantitatively definite social need for each particular kind
of product in an adequate manner, and whether the labour is
therefore proportionately distributed among the different spheres
in keeping with these social needs, which are quantitatively
circumscribed. (This point is to be noted in the distribution of

636 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

capital among the various spheres of production.) The social
need, that is, the use-value on a social scale, appears here as a
determining factor for the amount of total social labour-time which
is expended' in various specific spheres of production. But it is
merely the same law which is already applied in the case of single
commodities, namely, that the use-value of a commodity is the
basis of its exchange-value and thus of its value. This point has
a bearing upon the relationship between necessary and surplus
labour only in so far as a violation of this proportion makes it
impossible to realise the value of the commodity and thus the
surplus-value contained in it. For instance, let us assume that
proportionally too much cotton goods have been produced, although
only the labour-time necessary under the prevailing conditions
is incorporated in this total cloth production. But in general
too much social labour has been expended in this particular
line; in other words, a portion of this product is useless. It is
therefore sold solely as if it had been produced in the necessary
proportion. This quantitative limit to the quota of social labour¬
time available for the various particular spheres of production is
but a more developed expression of the law of value in general,
although the necessary labour-time assumes a different meaning
here. Only just so much of it is required for the satisfaction of
social needs. The limitation occurring here is due to the use-
value. Society can use only so much of its total labour-time for
this particular kind of product under prevailing conditions of
production. But the subjective and objective conditions of
surplus-labour and surplus-value in general have nothing to do
with the particular form of either the profit or the rent. These
conditions apply to surplus-value as such, no matter what
special form it may assume. Hence they do not explain ground-
rent.

3) It is precisely in the economic realisation of landed property,
in the development of ground-rent, that the following character¬
istic peculiarity comes to the fore, namely that its amount is
by no means determined by the actions of its recipient, but is
determined rather by the independent development of social
labour in which the recipient takes no part. It may easily happen,
therefore, that something is regarded as a peculiarity of rent
(and of the products of agriculture in general), which is really
a common feature of all branches of production and all their
products where the basis is commodity-production — and, in par¬
ticular, capitalist production, which is in its entirety commodity-
production.

INTRODUCTION

637

The amount of ground-rent (and with it the value of land) grows
with social development as a result of the total social labour. On
the one hand, this leads to an expansion of the market and of the
demand for products of the soil , and, on the other, it stimulates the
demand for land itself, which is a prerequisite of competitive pro¬
duction in all lines of business activity, even those which are not
agricultural. More exactly — if one considers only the actual agri¬
cultural rent — rent, and thereby the value of the land, develops
with the market for the products of the soil, and thus with the
increase in the non-agricultural population, with its need and
demand for means of subsistence and raw materials. It is in the
nature of capitalist production to continually reduce the agricul¬
tural population as compared with the non-agricultural, because
in industry (in the strict sense) the increase of constant capital
in relation to variable capital goes hand in hand with an absolute
increase, though relative decrease, in variable capital; on the
other hand, in agriculture the variable capital required for the
exploitation of a certain plot of land decreases absolutely; it
can thus only increase to the extent that new land is taken into
cultivation, but this again requires as a prerequisite a still greater
growth of the non-agricultural population.

In fact, we are not dealing here with a characteristic peculiarity
of agriculture and its products. On the contrary, the same applies
to all other branches of production and products where the basis
is commodity-production and its absolute form, capitalist
production.

These products are commodities, or use-values, which have an
exchange-value that is to be realised, to be converted into money,
only in so far as other commodities form an equivalent for them,
that is, other products confront them as commodities and values;
thus, in so far as they are not produced as immediate means of
subsistence for the producers themselves, but as commodities, as
products which become use-values only by their transformation
into exchange-values (money), by their alienation. The market
for these commodities develops through the social division of
labour; the division of productive labours mutually transforms
their respective products into commodities, into equivalents for
each other, making them mutually serve as markets. This is
in no way peculiar to agricultural products.

Rent can develop as money-rent only on the basis of commodity-
production, in particular capitalist production, and it develops to
the same extent that agricultural production becomes commodity-
production, that is, to the same extent that non-agricultural

638 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

production develops independently of agricultural production,
for to that degree the agricultural product becomes commodity,
exchange-value, and value. In so far as commodity-production
and thus the production of value develops with capitalist pro¬
duction so does the production of surplus-value and surplus-
product. But in the same proportion as the latter develops, landed
property acquires the capacity of capturing an ever-increasing
portion of this surplus-value by means of its land monopoly and
thereby, of raising the value of its rent and the price of the land
itself. The capitalist still performs an active function
in the development of this surplus-value and surplus-product. But
the landowner need only appropriate the growing share in the sur¬
plus-product and the surplus-value, without having contributed
anything to this growth. This is the characteristic peculiarity
of his position, and not the fact that the value of the products
of the land, and thus of the land itself, increases to the degree
that the market for them expands, the demand grows and with
it the world of commodities which confronts the products of the
land — in other words, the mass of non-agricultural commodity-
producers and non-agricultural commodity-production. But since
this takes place without any action on his part, it appears to
him as something unique that the mass of value, the mass of
surplus-value, and the transformation of a portion of surplus-
value into ground-rent should depend upon the social production
process, on the development of commodity-production in general.
For this reason, Dove, for instance, tries to evolve rent from
this. He says that rent does not depend upon the mass of the agri¬
cultural product, but upon its value;* however, this depends upon
the mass and productivity of the non-agricultural population.
But it is also true of every other product that it can only develop
as a commodity partly as the mass and partly as the variety of
other commodities which form equivalents for its increase. This
has already been demonstrated in connection with the general
presentation of value.** On the one hand, the exchangeability
of a product in general depends on the multiplicity of commodities
existing in addition to it. On the other hand, on it depends in
particular the quantity in which this product can be produced
as a commodity.

No producer, whether industrial or agricultural, when consid¬
ered by himself alone, produces value or commodities. His prod-

* P. Dove, The Elements of Political Science,
Ed.

** English edition: Vol. I, p. 88. — Ed.

Edinburgh, 1854, p. 279.—

INTRODUCTION

639

uct becomes a value and a commodity only in the context of
definite social interrelations. In the first place, in so far as it
appears as the expression of social labour, hence in so far as
the individual producer’s labour-time counts as a part of the
social labour-time in general; and, secondly, this social character
of his labour appears impressed upon his product through its
pecuniary character and through its general exchangeability
determined by its price.

Therefore, if, on the one hand, surplus-value or, still more
narrowly, the surplus-product in general is explained instead of
rent, the mistake is made, on the other hand, of ascribing
exclusively to agricultural products a characteristic which belongs
to all products in their capacity as commodities and values. This
is vulgarised still more by those who pass from the general deter¬
mination of value over to the realisation of the value of a specific
commodity. Every commodity can realise its value only in the
process of circulation, and whether it realises its value, or to what
extent it does so, depends on prevailing market conditions.

It is not a singularity of ground-rent, then, that agricultural
products develop into, and as, values, i.e., that they confront
other commodities as commodities, and that non-agricultural
products confront them as commodities; or that they develop as
specific expressions of social labour. The singularity of ground-
rent is rather that together with the conditions in which agricul¬
tural products develop as values (commodities), and together
with the conditions in which their values are realised, there also
grows the power of landed property to appropriate an increasing
portion of these values, which were created without its assist¬
ance; and so an increasing portion of surplus-value is transformed
into ground-rent.

CHAPTER XXXVIII

DIFFERENTIAL RENT: GENERAL REMARKS

In the analysis of ground-rent we shall begin with the assump¬
tion that products paying such a rent, products in which a portion
of the surplus-value, and therefore also a portion of the total price,
resolves itself into ground-rent, i.e., that agricultural as well as
mining products are sold at their prices of production like all
other commodities. (It suffices for our purposes to confine ourselves
to agricultural and mining products.) In other words, their sell¬
ing prices are made up of the elements of their cost (the value of
consumed constant and variable capital) plus a profit determined
by the general rate of profit and calculated on the total advanced
capital, whether consumed or not. We assume, then, that average
selling prices of these products are equal to their prices of produc¬
tion. The question now arises how it is possible for ground-rent
to develop under these conditions, i.e., how it is possible for a por¬
tion of the profit to become transformed into ground-rent, so that
a portion of the commodity-price falls to the landlord.

In order to demonstrate the general character of this form of
ground-rent, let us assume that most of the factories of a certain
country derive their power from steam-engines, while a smaller
number derive it from natural waterfalls. Let us further assume
that the price of production in the former amounts to 115 for a
quantity of commodities which have consumed a capital of 100.
The 15 % profit is calculated not solely on the consumed capital
of 100, but on the total capital employed in the production of
this commodity-value. We have previously shown that this price
of production is not determined by the individual cost-price
of every single industrial producer, but by the average cost-
price of the commodity under average conditions of capital in
the entire sphere of production. It is, in fact, the market-price
of production, the average market-price as distinct from its

DIFFERENTIAL RENT: GENERAL REMARKS

641

oscillations. It is in general in the form of the market-price, and,
furthermore, in the form of the regulating market-price, or
market-price of production, that the nature of the value of com¬
modities asserts itself, its determination not by the labour-time
necessary in the case of any individual producer for the produc¬
tion of a certain quantity of commodities, or of some individual
commodity, but by the socially necessary labour-time; that is,
by the labour-time, required for the production of the socially
necessary total quantity of commodity varieties on the market
under the existing average conditions of social production

As definite figures are immaterial in this case, we shall assume
furthermore that the cost-price in factories run on water-power
is only 90 instead of 100. Since the regulating market-price of pro¬
duction of this quantity of commodities=l 15, with a profit of
15%, the manufacturers who operate their machines on water¬
power will also sell their commodities at 115, i.e., the average
price regulating the market-price. Their profit would then be
25 instead of 15; the regulating price of production would pllow
them a surplus-profit of 10% not because they sell their commod¬
ities above the price of production, but because they sell them
at the price of production, because their commodities are pro¬
duced, or their capital operates, under exceptionally favourable
conditions, i.e., under conditions which are more favourable
than the average prevailing in this sphere.

Two things become evident at once:

First, the surplus-profit of the producers who use a natural
waterfall as motive power is to begin with in the same class with
all surplus-profit (and we have already analysed this category
when discussing prices of production) which is not the fortuitous
result of transactions in the circulation process, of the fortui¬
tous fluctuations in market-prices. This surplus-profit, then, is
likewise equal to the difference between the individual price of
production of these favoured producers and the general social
price of production regulating the market in this entire produc¬
tion sphere. This difference is equal to the excess of the general
price of production of the commodities over their individual
price of production. The two regulating limits of this excess are,
on the one hand, the individual cost-price, and thus the indi¬
vidual price of production, and, on the other hand, the general
price of production. The value of commodities produced with
water-power is smaller because a smaller total quantity of labour
is required for their production, i.e., less labour — in materialised
form — enters into the constant capital as part of the latter.

642 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

The labour employed here is more productive, its individual
productive power is greater than that employed in the majority
of factories of the same kind. Its greater productive power is
shown in the fact that in order to produce the same quantity
of commodities, it requires a smaller quantity of constant capital,
a smaller quantity of materialised labour, than the others. It
also requires less living labour, because the water-wheel need not
be heated. This greater individual productiveness of employed
labour reduces the value, but also the cost-price and thereby the
price of production of the commodity. For the individual in¬
dustrial capitalist this expresses itself in a lower cost-price for
his commodities. He has to pay for less materialised labour, and
also less wages for less living labour-power employed. Since the
cost-price of his commodities is lower, his individual price of
production is also lower. His cost-price is 90 instead of 100. His
individual price of production would therefore be only 103x/2
instead of 115 (100 : 115=90 : 103l/2). The difference between his
individual price of production and the general price of production
is limited by the difference between his individual cost-price and
the general cost-price. This is one of the magnitudes which form
the limits to his surplus-profit. The other is the magnitude of
the general price of production into which the general rate of
profit enters as one of the regulating factors. Were coal to become
cheaper, the difference between his individual cost-price and
the general cost-price would decrease, and with it his surplus-
profit. Should he be compelled to sell his commodities at their
individual value, or at the price of production determined by
their individual value, then the difference would disappear. It
is, on the one hand, a result of the fact that the commodities
are sold at their general market-price, the price brought about
by the equalisation of individual prices through competition,
and, on the other, a result of the fact that the greater individual
productivity of labour set in motion by him does not benefit the
labourer, but the employer, as does all productivity of labour,
that it appears as the productiveness of capital.

Since the level of the general price of production is one of the
limits of this surplus-profit, the level of the general rate of profit
being one of its factors, this surplus-profit can only arise from the
difference between the general and the individual price of produc¬
tion, and consequently from the difference between the general
and the individual rate of profit. An excess above this difference
presupposes the sale of products above, not at, the price of pro¬
duction regulated by the market.

DIFFERENTIAL RENT: GENERAL REMARKS

643

Secondly, thus far, the surplus-profit of the manufacturer using
natural water-power instead of steam does not differ in any way
from any other surplus-profit. All normal surplus-profit, that is,
all surplus-profit not due to fortuitous sales or market-price fluc¬
tuations is determined by the difference between the individual
price of production of the commodities of a particular capital and
the general price of production, which regulates the market-prices
of the commodities produced by the capital in this sphere of pro¬
duction in general, or, in other words, the market-prices of com¬
modities of the total capital invested in this sphere of production.

But now we come to the difference.

To what circumstance does the industrial capitalist in the pres¬
ent case owe his surplus-profit, the surplus resulting for him per¬
sonally from the price of production regulated by the general
rate of profit?

He owes it in the first instance to a natural force — the motive
power of the waterfall — which is found readily available in Na¬
ture and is not itself a product of labour like the coal which trans¬
forms water into steam. The coal, therefore, has value, must be
paid for by an equivalent, and has a cost. The waterfall is a natural
production agent in the production of which no labour enters.

But this is not all. The manufacturer who operates with steam
also employs natural forces which cost him nothing yet make the
labour more productive and increase the surplus-value and thereby
the profit, inasmuch as they thus cheapen the manufacture of the
means of subsistence required for the labourers. These natural
forces are thus quite as much monopolised by capital as the social
natural forces of labour arising from co-operation, division of la¬
bour, etc. The manufacturer pays for coal, but not for the capacity
of water to alter its physical state, to turn into steam, not for the
elasticity of the steam, etc. This monopolisation of natural forces,
that is, of the increase in labour-power produced by them, is com¬
mon to all capital operating with steam-engines. It may increase
that portion of the product of labour which represents surplus-
value in relation to that portion which is transformed into
wages. In so far as it does this, it raises the general rate of profit, but
it does not create any surplus-profit, for this consists of the
excess of individual profit over average profit. The fact that the
application of a natural force, a waterfall, creates surplus-profit
in this case, cannot therefore be due solely to the circumstance
that the increased productivity of labour here results from the
application of a natural force. Other modifying circumstances are
necessary.

644 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Conversely. The mere application of natural forces in industry
may influence the level of the general rate of profit because it
affects the quantity of labour required to produce the necessary
means of subsistence. But in itself it does not create any deviation
from the general rate of profit, and this is precisely the point in
which we are interested here. Furthermore, the surplus-profit
which some individual capital otherwise realises in a particular
sphere of production — for deviations of the rates of profit in vari¬
ous spheres of production are continually balanced out into an
average rate— is due, aside from fortuitous deviations, to a re¬
duction in cost-price, in production costs. This reduction arises
either from the fact that capital is used in greater than average
quantities, so that the faux frais of production are reduced, while
the general causes increasing the productiveness of labour (co¬
operation, division of labour, etc.) can become effective to a
higher degree, with more intensity, because their field of activity
has become larger; or it may arise from the fact that, aside from
the amount of functioning capital, better methods of labour,
new inventions, improved machinery, chemical manufacturing
secrets, etc., in short, new and improved, better than average
means of production and methods of production are used. The
reduction in cost-price and the surplus-profit arising from it are
here the result of the manner in which the functioning capital
is invested. They result either from the fact that the capital is
concentrated in the hands of one person in extraordinarily large
quantities (a condition that is cancelled out as soon as equal
magnitudes of capital are used on the average), or from the fact
that a certain magnitude of capital functions in a particularly
productive manner (a condition that disappears as soon as the
exceptional method of production becomes general or is sur¬
passed by a still more developed one).

The cause of the surplus-profit, then, arises here from the capital
itself (which includes the labour set in motion by it) whether it
be due to the greater magnitude of capital employed or to its more
efficient application; and, as a matter of fact, there is no partic¬
ular reason why all capital in the same production sphere should
not be invested in the same manner. On the contrary, the com¬
petition between capitals tends to cancel these differences more
and more. The determination of value by the socially necessary
labour-time asserts itself through the cheapening of commodities
and the compulsion to produce commodities under the same
favourable conditions. But matters are different with the surplus-
profit of an industrial capitalist who makes use of the water-

DIFFERENTIAL RENT: GENERAL REMARKS

645

fall. The increased productiveness of the labour used by him
comes neither from the capital and labour itself, nor from the
mere application of some natural force different from capital
and labour but incorporated in the capital. It arises from the
greater natural productiveness of labour bound up with the ap¬
plication of a force of Nature, but not a force of Nature that is
at the command of all capital in the same sphere of production,
as for example the elasticity of steam, hi other words, its applica¬
tion is not to be taken for granted whenever capital is generally
invested in this sphere of production. On the contrary, it is a
monopolisable force of Nature which, like the waterfall, is only
at the command of those who have at their disposal particular
portions of the earth and its appurtenances. It is by no means
within the power of capital to call into existence this natural
premise for a greater productivity of labour in the same manner
as any capital may transform water into steam. It is found only lo¬
cally in Nature and, wherever it does not exist, it cannot be estab¬
lished by a definite investment of capital. It is not bound to
goods which labour can produce, such as machines and coal, but
to specific natural conditions prevailing in certain portions of
land. Those manufacturers who own waterfalls exclude those
who do not from using this natural force, because land, and par¬
ticularly land endowed with water-power, is scarce This does
not prevent the amount of water-power available for industrial
purposes from being increased, even though the number of nat¬
ural waterfalls in a given country is limited. The waterfall may
be harnessed by man in order to fully exploit its motive force.
If such exists, the water-wheel may be improved so as to make
use of as much of the water-power as possible; where the ordinary
wheel is not suitable for the water-supply, turbines may be used,
etc. The possession of this natural force constitutes a monopoly
in the hands of its owner; it is a condition for an increase in the
productiveness of the invested capital that cannot be established
by the production process of the capital itself;33 this natural
force, which can be monopolised in this manner, is always bound
to the land. Such a natural force does not belong to the general
conditions of the sphere of production in question, nor to those
conditions of the latter which may be generally established.

Now let us assume that the waterfalls, along with the land to

,s Concerning extra profit, see the Inquiry [ Into those Principles, Respect¬
ing the Nature of Demand and the Necessity of Consumption, lately advocated
by Mr. Malthus, London, 1821.— Ed.] (against Malthus).

646 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

which they belong, are held by individuals who are regarded as
owners of these portions of the earth, i.e., who are landowners.
These owners prevent the investment of capital in the waterfalls
and their exploitation by capital. They can permit or forbid
such utilisation. But a waterfall cannot be created by capital
out of itself. Therefore, the surplus-profit which arises from the
employment of this waterfall is not due to capital, but to the
utilisation of a natural .force which can be monopolised, and has
been monopolised, by capital. Under these circumstances, the sur¬
plus-profit is transformed into ground-rent, that is, it falls into
possession of the owner of a waterfall. If the manufacturer pays the
owner of a waterfall £10 annually, then his profit is £15, that is,
15% on the £100 which then make up his cost of production; and
he is just as well or possibly better off than all other capitalists in
his sphere of production who operate with steam. It would not
alter matters one bit if the capitalist himself should be the own¬
er of a waterfall. He would, in such a case, pocket as before the
surplus-profit of £10 in his capacity as waterfall owner, and not
in his capacity as capitalist; and precisely because this surplus
does not stem from his capital as such, but rather from the control
of a limited natural force distinct from his capital which can be
monopolised, is it transformed into ground-rent.

First, it is evident that this rent is always a differential rent,
for it does not enter as a determining factor into the general pro¬
duction price of commodities, but rather is based on it. It invari¬
ably arises from the difference between the individual production
price of a particular capital having command over the monopo¬
lised natural force, on the one hand, and the general production
price of the total capital invested in the sphere of production
concerned, on the other.

Secondly, thi& ground-rent does not arise from the absolute
increase in the productiveness of employed capital, or labour
appropriated by it, since this can only reduce the value of commod¬
ities; it is due to the greater relative fruitfulness of specific separ¬
ate capitals invested in a certain production sphere, as compared
with investments of capital which are excluded from these ex¬
ceptional and natural conditions favouring productiveness. For
instance, if the use of steam should offer overwhelming advantages
not offered by the use of water-power, despite the fact that coal
has value and the water-power has not, and if these advantages
more than compensated for the expense, then, the water-power
would not be used and could not produce any surplus-profit,
and therefore could not produce any rent.

DIFFERENTIAL RENT: GENERAL REMARKS

647

Thirdly, the natural force is not the source of surplus-profit, but
only its natural basis, because this natural basis permits an ex¬
ceptional increase in the productiveness of labour. In the same
way, use-value is in general the bearer of exchange-value, but not
its cause. If the samb use-value could be obtained without labour,
it would have no exchange-value, yet it would retain, as before,
the same natural usefulness as use-value. On the other hand,
nothing can have exchange-value unless it has use-value, i.e.,
unless it is a natural bearer of labour. Were it not for the fact
that the various values are averaged out into prices of produc¬
tion, and the various individual prices of production into a gen¬
eral price of production regulating the market, the mere increase
in productivity of labour through utilisation of the waterfall
would merely lower the price of commodities produced with the
aid of this waterfall, without increasing the share of profit con¬
tained in these commodities. Similarly, on the other hand, this
increased productivity of labour itself would not be converted
into surplus-value were it not for the fact that capital appropri¬
ates the natural and social productivity of the labour used by it
as its own.

Fourthly, the private ownership of the waterfall in itself has
nothing to do with the creation of the surplus-value (profit) por¬
tion, and therefore, of the price of the commodity in general,
which is produced by means of the waterfall. This surplus-profit
would also exist if landed property did not exist; for instance,
if the land on which the waterfall is situated were used by the
manufacturer as unclaimed land. Hence landed property does
not create the portion of value which is transformed into surplus-
profit, but merely enables the landowner, the owner of the wa¬
terfall, to coax this surplus-profit out of the pocket of the
manufacturer and into his own. It is not the cause of the creation
of such surplus-profit, but is the cause of its transformation into
the form of ground-rent, and therefore of the appropriation of
this portion of the profit, or commodity-price, by the owner of
the land or waterfall.

Fifthly, it is evident that the price of the waterfall, that is, the
price which the landowner would receive were he to sell it to a
third party or even to the manufacturer himself, does not immedi¬
ately enter into the production price of the commodities, although
it does enter into the individual cost-price of the manufacturer; be¬
cause the rent arises here from the price of production of similar
commodities produced by steam machinery, and this price is reg¬
ulated independently of the waterfall. Furthermore, this price of

048 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

the waterfall on the whole is an irrational expression, but behind
it is hidden a real economic relationship. The waterfall, like land
in general, and like any natural force, has no value because it does
not represent any materialised labour, and therefore, it has no
price, which is normally no more than the expression of value
in money terins. Where there is no value, there is also eo ipso
nothing to be expressed in money. This price is nothing more
than the capitalised rent. Landownership enables the landowner
to appropriate the difference between the individual profit and
average profit. The profit thus acquired, which is renewed every
year, may be capitalised, and appears then as the price of the
natural force itself. If the surplus-profit realised by the manu¬
facturer using the waterfall amounts to £10 per year, and the
average interest is 5%, then these £10 represent the annual in¬
terest on a capital of £200 and the capitalisation of the annual
£10 which the waterfall enables its owner to appropriate from
the manufacturer, appears then as the capital-value of the water¬
fall itself. That it is not the waterfall itself which has value,
but that its price is a mere reflection of the appropriated surplus-
profit capitalistically calculated, becomes at once evident from
the fact that the price of £200 represents merely the product
obtained by multiplying a surplus-profit of £10 by 20 years,
whereas, other conditions remaining equal, the same waterfall
will enable its owner to appropriate these £10 every year for an
indefinite number of years— 30 years, 100 years, or x years; and,
whereas, on the other hand, should some new method of produc¬
tion not applicable with water-power reduce the cost-price of
commodities produced by steam machinery from £100 to £90,
the surplus-profit, and thereby the rent, and thus the price of the
waterfall, would disappear.

Now that we have described the general concept of differential
rent, we shall pass on to its consideration in agriculture proper.
What applies to agriculture will also apply on the whole to
mining.

CHAPTER XXXIX

FIRST FORM OF DIFFERENTIAL RENT
(DIFFERENTIAL RENT I)

Ricardo is quite right in the following observations:

“Rent is always the difference between the produce obtained by
the employment of two equal quantities of capital and labour”
( Principles , p. 59). [He means differential rent, for he assumes
that no other rent but differential rent exists. ] He should have
added, “on equal areas of land” in so far as it is a matter of
ground-rent and not surplus-profit in general.

In other words, surplus-profit, if normal and not due to acciden¬
tal occurrences in the circulation process, is always produced as a
difference between the products of two equal quantities of capital
and labour, and this surplus-profit is transformed into ground-
rent when two equal quantities of capital and labour are employed
on equal areas of land with unequal results. Moreover, it is by
no means absolutely necessary for this surplus-profit to arise
from the unequal results of equal quantities of invested capital.
The various investments may also employ unequal quantities
of capital. Indeed, this is generally the case. But equal propor¬
tions, for instance £100 of each, produce unequal results; that is,
their rates of profit are different. This is the general prerequisite
for the existence of surplus-profit in any sphere of capital invest¬
ment. The second prerequisite is the transformation of this
surplus-profit into the form of ground-rent (of rent in general as a
form distinct from profit); it must be investigated in each case:
when, how, under what conditions this transformation takes
place.

Ricardo is also right in the following observation, provided it is
limited to differential rent:

“Whatever diminishes the inequality in the produce obtained
on the same or on new land, tends to lower rent, and whatever
increases that inequality, necessarily produces an opposite effect
and tends to raise it” (p. 74).

650 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

However, among these causes are not merely the general ones
(fertility and location), but also 1) the distribution of taxes, de¬
pending on whether it operates uniformly or not; the latter is
always the case when, as in England, it is not centralised and
when the tax is levied on land, not on rent; 2) the inequalities
arising from a difference in agricultural development in differ¬
ent parts of the country, since this line of production, owing to
its traditional character, evens out with more difficulty than
manufacture; and 3) the inequality in distribution of capital
among capitalist tenants. Since the invasion of agriculture by
the capitalist mode of production, transformation of independ¬
ently producing peasants into wage-workers, is in fact the last
conquest of this mode of production, these inequalities are greater
here than in any other line of production.

Having made these preliminary remarks, I will first present a
brief summary of the characteristic features of my analysis in
contradistinction to that of Ricardo, etc.

We shall first consider the unequal results of equal quantities
of capital applied to different plots of land of equal size; or, in the
case of unequal size, results calculated on the basis of equal areas.

The two general causes of these unequal results— quite inde¬
pendent of capital— aie: 1) Fertility. (With reference to this first
point, it will be necessary to discuss what is meant by natural fer¬
tility of land and what factors are involved.) 2) The location of the
land. This is a decisive factor in the case of colonies and in general
determines the sequence in which plots of land can be cultivated.
Furthermore, it is evident that these two different causes of dif¬
ferential rent — fertility and location — may work in opposite direc¬
tions. A certain plot of land may be very favourably located and
yet be very poor in fertility, and vice versa. This circumstance is
important, for it explains how it is possible that bringing into
cultivation the land of a certain country may equally well proceed
from the better to the worse land as vice versa. Finally, it is clear
that the progress of social production in general has, on the one
hand, the effect of evening out differences arising from location
as a cause of ground-rent, by creating local markets and improv¬
ing locations by establishing communication and transportation
facilities; on the other hand, it increases the differences in in¬
dividual locations of plots of land by separating agriculture from
manufacturing and forming large centres of production, on the one

FIRST FORM OF DIFFERENTIAL RENT

651

hand, while relatively isolating agricultural districts, on the other.

For the present, however, we shall leave this point concerning
location out of consideration and confine ourselves to natural
fertility. Aside from climatic factors, etc., the difference in nat¬
ural fertility depends on the chemical composition of the top
soil, that is, on its different plant nutrition content. However,
assuming the chemical composition and natural fertility in this
respect to be the same for two plots of land, the actual effective
fertility differs depending on whether these elements of plant
nutrition are in a form which may be more or less easily assim¬
ilated and immediately utilised for nourishing the crops. Hence,
it will depend partly upon chemical and partly upon mechanical
developments in agriculture to what extent the same natural
fertility may be made available on plots of land of similar nat¬
ural fertility. Fertility, although an objective property of the
soil, always implies an economic relation, a relation to the exist¬
ing chemical and mechanical level of development in agricul¬
ture, and, therefore, changes with this level of development.
Whether by chemical means (such as the use of certain liquid
fertilisers on stiff clay soil and calcination of heavy clayey soils)
or mechanical means (such as special ploughs for heavy soils),
the obstacles which made a soil of equal fertility actually less
fertile can be eliminated (drainage also belongs under this head).
Or even the sequence in types of soils taken under cultivation
may be changed thereby, as was the case, for instance, with light
sandy soil and heavy clayey soil at a certain period of develop¬
ment in English agriculture. This shows once again that histori¬
cally, in the sequence of soils taken under cultivation, one may
pass over from more fertile to less fertile soils as well as vice
versa. The same results may be obtained by an artificially
created improvement in soil composition or by a mere change in
agricultural methods. Finally, the same result may be brought
about by a change in the hierarchical arrangement of the soil
types due to different conditions of the subsoil, as soon as the
latter likewise begins to be tilled and turned over intc top layers.
This is in part dependent on the employment of hew agricultural
methods (such as the cultivation of fodder-grass) and in part
on the employment of mechanical means which either turn the
subsoil over into top layers, mix it with top soil, or cultivate
the subsoil without turning it up.

All these influences upon the differential fertility of various
plots of land are such that from the standpoint of economic fer¬
tility, the level of labour productivity, in this case the capacity

652 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

of agriculture to make the natural soil fertility immediately
exploitable— a capacity which differs in various periods of de¬
velopment — is as much a factor in so-called natural soil fertility
as its chemical composition and other natural properties.

We assume, then, the existence of a particular stage of develop¬
ment in agriculture. We assume furthermore that the hierarchical
arrangement of soil types accords with this stage of development,
as is, of course, always the case for simultaneous capital invest¬
ments on different plots of land. Differential rent may then form
either an ascending or a descending sequence, for although the
sequence is given for the totality of actually cultivated plots
of land, a series of movements leading to its formation has in¬
variably taken place.

Let us assume the existence of four kinds of soil: A, B, C, D.
Let us furthermore assume the price of one quarter of wheat =£3,
or 60 shillings. Since the rent is solely differential rent, this
price of 60 shillings per quarter for the worst soil is equal to the
price of production, that is, equal to the capital plus average profit.

Let A be this worst soil, which yields 1 quarter=60 shillings
for each 50 shillings spent; hence the profit amounts to 10 shil¬
lings, or 20%.

Let B yield 2 quarters = 120 shillings for the same expenditure
This would mean 70 shillings of profit, or a surplus-profit of 60
shillings.

Let C yield 3 quarters= 180 shillings for the same expenditure;
total profit = 130 shillings; surplus-profit = 120 shillings.

Let D yield 4 quarters=240 shillings=180 shillings of surplus-
profit.

We would then have the following sequence:

TABLE l

Type

Soil

Product

Capital

Advanced

Profit

Rent

Quar¬

ters

Shil¬

lings

Quar¬

ters

Shil¬

lings

Quar¬

ters

Shil¬

lings

*/.

120

1V«

■

180

21/.

130

■ 9

240

3'/s

180

Total...

10 qrs

600sh.

6 qrs

360sh.

FIRST FORM OF DIFFERENTIAL RENT

653

The respective rents are: D = 190sh. — 10sh., or the difference be¬
tween D and A; C = 130sh. — 10sh., or the difference between C
and A; B =70sh. — 10sh., or the difference between B and A;
and the total rent for B, C, D=6 quarters=360 shillings, equal
to the sum of the differences between D and A, C and A, B and A.

This sequence, which represents a given product in a given con¬
dition may, considered abstractly (we have already offered the
reasons why this may be the case in reality), descend from D to
A, from fertile to less and less fertile soil, or rise from A to D,
from relatively poor to more and more fertile soil, or, finally,
may fluctuate, i.e., now rising, now descending — for instance
from D to C, from C to A, and from A to B.

The process in the case of a descending sequence was as follows:
The price of a quarter of wheat rose gradually from, say, 15 shil¬
lings to 60 shillings. As soon as the 4 quarters produced by D (we
may consider these 4 quarters as so many million quarter^) no
longer sufficed, the price of wheat rose to a point where the supply
shortage could be produced by C. That is to say, the price of wheat
must have risen to 20 shillings per quarter. When it had risen to
30 shillings per quarter, B could be taken under cultivation, and
when it reached 60 shillings A could be taken under cultivation;
and the capital invested did not have to content itself with a rate
of profit lower than 20%. In this manner, a rent was established
for D, first of 5 shillings per quarter = 20 shillings for the 4 quar¬
ters produced by it; then of 15 shillings per quarter=60 shillings,
then of 45 shillings per quarter = 180 shillings for 4 quarters.

If the rate of profit of D originally was similarly=20% , then its
total profit on 4 quarters of wheat was also but 10 shillings, but
this represented more grain when the price was 15 shillings than
it does when the price is 60 shillings. But since the grain enters
into the reproduction of labour-power, and part of each quarter
has to make good some portion of wages and another constant
capital, the surplus-value under these conditions was higher,
and thus other things being equal the rate of profit too. (The mat¬
ter of rate of profit will have to be specially analysed, and in
greater detail.)

On the other hand, if the sequence were in the reverse order, that
is, if the process initiated from A, then the price of wheat at first
would rise above 60 shillings per quarter when new land would
have to be taken under cultivation. But since the necessary supply
would be produced by B, a supply of 2 quarters, the price would
fall to 60 shillings again; for B produced wheat at a cost of 30
shillings per quarter, but sold it at 60 shillings because the

654 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

supply just sufficed to cover the demand. Thus a rent was formed,
first of 60 shillings for B, and in the same way for C and D; it is
assumed throughout that the market-price remained at 60 shil¬
lings, although C and D produced wheat having an actual value
of 20 and 15 shillings per quarter respectively, because the supply
of the one quarter produced by A was needed as much as ever
to satisfy the total demand. In this case, the increase in demand
above supply, which was first satisfied by A, then by A and B,
would not have made it possible to cultivate B, C and D succes¬
sively, but would merely have caused a general extension of
the sphere of cultivation, and the more fertile lands might only
later come under cultivation.

In the first sequence, an increase in price would raise the rent
and decrease the rate of profit. Such a decrease might be entirely
or partially checked by counteracting circumstances. This point
will have to be treated later in more detail. It should not be forgot¬
ten that the general rate of profit is not determined uniformly in
all spheres of production by the surplus-value. It is not the
agricultural profit which determines industrial profit, but vice
versa. But of this more anon.

In the second sequence the rate of profit on invested capital
would remain the same. The amount of profit would be represented
by less grain; but the relative price of grain, compared with that
of other commodities, would have risen. However, the increase
in profit wherever such an increase takes place, becomes sepa¬
rated from the profit in the form of rent, instead of flowing into
the pockets of the capitalist tenant farmer and appearing as a
growing profit. The price of grain, however, could remain un¬
changed under the conditions assumed here.

The development and growth of differential rent would remain
the same for fixed as well as for increasing prices, and for a con¬
tinuous progression from worse to better soils as well as for a
continuous retrogression from better to ■worse soils.

Thus far we have assumed: 1) that the price rises in one sequence
and remains stationary in the other; 2) that there is a continuous
progression from better to worse soil, or from worse to better soil.

But now let us assume that the demand for grain rises from its
original figure of 10 to 17 quarters; furthermore, that the worst,
soil A is displaced by another soil A, which produces ll/3 quarters
at a price of production of 60 shillings (50sh. cost plus lOsh.
for 20% profit), so that its price of production per quarter=45
shillings; or, perhaps, the old soil A may have improved through
continuous rational cultivation, or be cultivated more produc-

FIRST FORM OF DIFFERENTIAL RENT

655

lively at the same cost, for instance through the introduction
of clover, etc., so that its output with the same investment of
capital rises to 1 V3 quarters. Let us also assume that soil types
B, C and D yield the same output as previously, but that new
soil types have been introduced, for instance, A with a fertility
lying between A and B, and also B' and B" with a fertility be¬
tween B and C. We should then observe the following phenomena:

First : The price of production of a quarter of wheat, or its regu¬
lating market-price, falls from 60 shillings to 45 shillings, or by
25%.

Second : The cultivation proceeds simultaneously from more
fertile to less fertile soil, and from less fertile to more fertile soil.
Soil A' is more fertile than A, but less fertile than the hitherto
cultivated soils B, C and D. B' and B" are more fertile than A,
A' and B, but less fertile than C and D. The sequence thus pro¬
ceeds in crisscross fashion. Cultivation does not proceed to soil
absolutely less fertile than A, etc., but to relatively less fertile
soil with respect to the hitherto most fertile soil types C and
D; on the other hand, cultivation does not proceed to soil abso¬
lutely more fertile, but to relatively more fertile soil with respect
to the hitherto least fertile soil A, or A and B.

Thirdly: The rent on B falls; likewise the rent on C and D; but
the total rental in grain rises from 6 quarters to 7 */.; the amount
of cultivated and rent-yielding land increases, and the amount of

TABLE II

Type of
Soil

Product

Capi¬

tal

Invest¬

Profit

Rent

Price of
Production
per Quarter

Quar¬

ters

Shil¬

lings.

Quar¬

ters

Shil¬

lings

Quar¬

ters

Shil¬

lings

1V3

1a/3

*/.

■££K

8/.

30 sh.

B’

2*/»

105

I*/.

25«/,* sh.

B”

2V.

k m

I5/,

IVs

22VS sh.

•l8/,

iv.

20 sh.

2 »/.

130

2 Vs

120

15 sh.

Total . . .

■

7V|

345

* In the German 1894 edition this reads: 25*/,.— Ed.

656 transformation of surplus-profit into ground-rent

produce rises from 10 quarters to 17. The profit, although it re¬
mains the same for A, rises if expressed in grain, but the rate
of profit itself might rise, because the relative surplus-value does.
In this case, the wage, i.e., the investment of variable capital and
therefore the total outlay, is reduced because of the cheapening
of means of subsistence. This total rental expressed in money falls
from 360 shillings to 345 shillings.

Let us draw up the new sequence. [See p. 655 — Ed.]

Finally, if only soil types A, B, C and D were cultivated as
before, but their productiveness rose in such a way that A pro¬
duced 2 quarters instead of 1 quarter, B — 4 quarters instead of
2, C— 7 quarters instead of 3, and D— 10 quarters instead of 4,
so that the same causes affect the various types of soil differently,
the total production increases from 10 quarters to 23. Assuming
that demand absorbs these 23 quarters through an increase in
population and a fall in prices, we should obtain the following
result:

TABLE III

Type or

Soil

Product

Capi¬

tal

Invest¬

Price of
Production
per Quarter

Profit

Rent

Quar¬

ters

Shil¬

lings

Shil¬

lings

Quar¬

ters

Shil¬

lings

120

210

8 V»

160

150

300

250

240

Total . . .

450

The numerical proportions in this and in other tables are
chosen at random but the assumptions are quite rational.

The first and principal assumption is that an improvement in
agriculture acts differently upon different soils, and in this case
affects the best types of soil, C and D, more than types A and B.
Experience has shown that this is generally the case, although
the opposite may also take place. If the improvement affected
the poorer soils more than the better ones, rent on the latter
would have fallen instead of risen. But in our table, we have
assumed that the absolute growth in fertility of all soil types
is simultaneously accompanied by an increase in greater rela-

FIRST FORM OF DIFFERENTIAL RENT

657

tive fertility of the better soil types, C and D; this means an in¬
crease in the difference between the product at the same capital
investment, and thus an increase in differential rent.

The second assumption is that total demand keeps pace with the
increase in the total product. First , one need not imagine such an
increase coming about abruptly, but rather gradually — until se¬
quence III is established. Secondly, it is not true that the con¬
sumption of necessities of life does not increase as they become
cheaper. The abolition of the Corn Laws in England proved the
reverse to be the case (see Newman*); the opposite view stems
solely from the fact that large and sudden differences in harvests,
which are mere results of weather, bring about at one time an
extraordinary fall, at another an extraordinary rise, in grain
prices. While in such a case the sudden and short-lived reduction
in price does not have time to exert its full effect upon the ex¬
tension of consumption, the opposite is true when a reduction
arises from the lowering of the regulating price of production
itself, i.e., is of a long-term nature. Thirdly, a part of the grain
may be consumed in the form of brandy or beer; and the increas¬
ing consumption of both of these items is by no means confined
within narrow limits. Fourthly , the matter depends in part upon
the increase in population and in part on the fact that the
country may be grain-exporting, as England still was long after
the middle of the 18th century, so that the demand is not solely
regulated within the confines of national consumption. Finally,
the increase and price reduction in wheat production may result
in making wheat, instead of rye or oats, the principal article of
consumption for the masses, so that the demand for it may grow
if only for this reason, just as the opposite may take place
when production decreases and prices rise. — Thus, under these
assumptions, and with the previously selected ratios, sequence
III yields the result that the price per quarter falls from 60 to
30 shillings, that is, by 50%; that production, compared to se¬
quence I, increases from 10 to 23 quarters, i.e., by 130%; that
the rent remains fixed for soil B, increases by 25%** for C, and
by 331/, %*** for D; and that the total rental increases from £18
to £221/2,**** i.e., by 25%.*****

• F. Newman, Lectures on Political Economy, London, 1851, p. 158. —
Ed.

** In the German 1894 edition this reads: doubles. — Ed.

*** Ibid.: more than doubles. — Ed.

**** Ibid.: 22.— Ed.

***** Ibid.: 22'/,%. — Ed.

658 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

A comparison of these three tables (whereby sequence I is to
be taken twice, rising from A to D, and descending from D
to A), which may be considered either as given gradations under
some stage of society, for instance, as existing side by side
in three different countries, or as succeeding one another
in different periods of development within the same country,
shows:

1) The sequence, when complete, whatever the course of its form¬
ative process may have been, invariably appears as being in a
descending line; for when analysing rent the point of departure
will always be land yielding the maximum rent, and only finally
do we come to land yielding no rent.

2) The price of production on the worst soil, i.e., which yields
no rent, is always the one regulating the market-price, although
the latter in Table I, if its sequence were formed in an ascending
line, only remained fixed because better and better soil was con¬
stantly drawn into cultivation. In such a case, the price of grain
produced on the best soil is a regulating one in so far as it depends
upon the quantity produced on such soil to what extent soil type
A remains the regulator. If B, C and D should produce more
than demand requires, A would cease to be the regulator. Storch
has this point hazily in mind when he adopts the best soil type
as the regulating one.* In this manner, the American price of
grain regulates the English price.

3) Differential rent arises from differences in the natural fertil¬
ity of the soil which is given for every given stage of agricultural
development (leaving aside for the present the question of loca¬
tion); in other words, from the limited area of the best land, and
from the circumstance that equal amounts of capital must be
invested on unequal types of soil, so that an unequal product
results from the same amount of capital.

4) The existence of a differential rent and of a graduated differ¬
ential rent can develop equally well in a descending sequence,
which proceeds from better to worse soils, as in an ascending one,
which progresses in the opposite direction from worse to better
soils; or it may be brought about in checkered fashion by alter¬
nating movements. (Sequence I may be formed by proceeding from
D to A, or from A to D; sequence II comprises both types of
movement.)

* H. Storch, Cours d'economie politique, ou Exposition des principes qui
determinent la prosperity des nations, Tome II, St.-Petersbourg, 1815, pp.
78-79 .-Ed.

FIRST FORM OF DIFFERENTIAL RENT

659

5) Depending on its mode of formation, differential rent may de¬
velop along with a stationary, rising or falling price of the prod¬
ucts of the land. In the case of a falling price, total production
and total rental may rise, and rent may develop on hitherto
rentless land, even though the worst soil A may have been dis¬
placed by a better one or may itself have improved, and even
though the rent may decrease on other land which is better, or
even the best (Table II); this process may also be connected with
a fall in total rent (in money). Finally, at a time when prices
fall on account of a general improvement in cultivation, so that
the product of the worst soil and its price decrease, the rent on
some of the better soils may remain the same, or may fall, while
it may rise on the best ones. Nevertheless, the differential rent
of every soil, compared with the worst soil, depends, if the differ¬
ence in quantity of products is given, upon the price, say, of a
quarter of wheat. But when the price is given, differential rent
depends upon the magnitude of the difference in quantity of
products, and if with an increasing absolute fertility of all soils
that of the better ones grows relatively more than that of the
worse ones, the magnitude of this difference grows proportion¬
ately. In this way (see Table I), when the price is 60 shillings,
the rent on D is determined by its differential product as com¬
pared with A; in other words, by the surplus of 3 quarters. The
rent is therefore= 3x60= 180 shillings. But in Table III, where
the price = 30 shillings, the rent is determined by the quantity
of surplus-product of D as compared with A = 8 quarters; we
therefore obtain 8 X 30= 240 shillings.

This takes care of the first false assumption regarding differen¬
tial rent — still found among West, Malthus, and Ricardo —
namely, that it necessarily presupposes a movement toward worse
and worse soil, or an ever-decreasing fertility of the soil.* It
can be formed, as we have seen, with a movement toward better
and better soil; it can be formed when a better soil takes the lowest
position that was formerly occupied by the worst soil; it can be
connected with a progressive improvement in agriculture. The
precondition is merely the inequality of different kinds of soil.

* [West] Essay on the Application of Capital to Land, London,
1815.

Malthus, Principles of Political Economy, London, 1836.

Malthus, An Inquiry into the Nature and Progress of Rent, and the Prin¬
ciples by which it is regulated, London, 1815.

Ricardo, On the Principles of Political Economy, and Taxation, Third
edition, London, 1821, Chap. II.— Ed.

660 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

So far as the increase in productivity is concerned, it assumes
that the increase in absolute fertility of the total area does not
eliminate this inequality, but either increases it, leaves it un¬
changed, or merely reduces it.

From the beginning to the middle of the 18th century, Eng¬
land ’s grain prices constantly fell in spite of the falling prices of
gold and silver, while at the same time (viewing this entire period
as a whole) there was an increase in rent, in the over-all amount
of rent, in the area of cultivated land, in agricultural production,
and in population. This corresponds to Table I taken in conjunc¬
tion with Table II in an ascending line, but in such a way that
the worst land A is either improved or eliminated from the
grain-producing area; however, this does not mean that it was
not used for other agricultural or industrial purposes.

From the early 19th century (date to be specified more pre¬
cisely) until 1815 there is a constant rise in grain prices, accom¬
panied by a steady increase in rent, in the over-all amount of
rent, in the area of cultivated land, in agricultural production,
and in population. This corresponds to Table I in a descending
line. (Cite some sources here on the cultivation of inferior land
in that period.)

In Petty’s and Davenant’s time, farmers and landowners com¬
plained about improvements and the bringing into cultivation
of new land; the rent on better lands decreased, and the total
amount of rent increased through the extension of the area of
land yielding rent.

(These three points should be illustrated later by quotations;
likewise for the difference in fertility of various cultivated sec¬
tions of land in a particular country.)

Regarding differential rent in general, it is to be noted that the
market-value is always above the total price of production of the
total quantity of products. As an example, let us take Table I.
Ten quarters of total product are sold for 600 shiljings because the
market-price is determined by the price of production of A, which
amounts to 60 shillings per quarter. But the actual price of produc¬

tion is:

A . 1 qr =60 sh. 1 qr=60 sh.

B . 2 qrs=60 sh. 1 qr=30 sh.

G . 3 qrs=60 sh. 1 qr=20 sh.

D . 4 qrs=60 sh. 1 qr=15 sh.

10 qrs=240 sh. Average

1 qr=24 sh.

FIRST FORM OF DIFFERENTIAL RENT

661

The actual price of productiou of these 10 quarters is 240 shil¬
lings; but they are sold for 600 shillings, i.e., at 250% of the price
of production. The actual average price for 1 quarter is 24
shillings; the market-price is 60 shillings, i.e., also 250% of the
production price.

This is determination by market-value as it asserts itself on the
basis of capitalist production through competition; the latter
creates a false social value. This arises from the law of market-
value, to which the products of the soil are subject. The deter¬
mination of the market-value of products, including therefore
agricultural products, is a social act, albeit a socially uncon¬
scious and unintentional one. It is based necessarily upon the
exchange-value of the product, not upon the soil and the differences
in its fertility. If we suppose the capitalist form of society to be
abolished and society organised as a conscious and planned as¬
sociation, then the 10 quarters would represent a quantity of
independent labour-time equal to that contained in 240 shillings.
Society would not then buy this agricultural product at two
and a half times the actual labour-time embodied in it and the
basis for a class of landowners would thus be destroyed. This
would have the same effect as a reduction in price of the product
to the same amount resulting from foreign imports. While it is,
therefore, true that, by retaining the present mode of production,
but assuming that the differential rent is paid to the state, prices
of agricultural products would, everything else being equal,
remain the same, it is equally wrong to say that the value of the
products would remain the same if capitalist production were
superseded by association. The identity of the market-price for
commodities of the same kind is the manner whereby the social
character of value asserts itself on the basis of capitalist produc¬
tion and, in general, any production based on the exchange of
commodities between individuals. What society overpays for
agricultural products in its capacity of consumer, what is a minus
in the realisation of its labour-time in agricultural production,
is now a plus for a portion of society, for the landlords.

A second circumstance, important for the analysis to be given
under II of the next chapter, is the following:

It is not merely a matter of rent per acre, or per hectare, nor
generally of a difference between the price of production and market-
price, nor between the individual and the general price of produc¬
tion per acre, but it is also a question of how many acres of each
type of soil are under cultivation. The point of importance here
relates directly only to the magnitude of the rental, that is, the

22—2494

662 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

total rent of the entire cultivated area; but it serves us at the
same time as a stepping-stone to the consideration of a rise in
the rate of rent although there is no rise in prices, nor increase
in the differences in relative fertility of the various types of soil
if prices fall.

We had above:

TABLE I

Type of

Soil

Acres

Price of
Production

Product

Rent in
Grain

Rent in
Money

1 qr

2 qrs

1 qr

£ 3

3 qrs

2 qrs

£ 0

4 qrs

3 qrs

£ 9

Total . . .

4 acres

10 qrs

6 qrs

£ 18

Now let us assume that the number of cultivated acres is dou¬
bled in every category. We then have:

TABLE la

Type of
Soil

Acres

Price of
Production

Product

Rent in
Grain

Rent in
Money

£ 6

2 qrs

£ 6

4 qrs

2 qrs

£ 6

6 qrs

4 qrs

£ 12

£ 6

8 qrs

6 qrs

£ 18

Total . . .

8 acres

20 qrs

12 qrs

£ 36

Let us assume two more cases. Suppose in the first case produc¬
tion expands on the two poorest types of soil in the following
manner:

FIRST FORM OF DIFFERENTIAL RENT

663

TABLE 1b

Type of

Soil

Acre9

Price of Production

Product

Rent in
Grain

Rent

in Money

Per Acre

Total

£ 3

£ 12

4 qrs

£ 3

£ 12

8 qrs

4 qrs

£ 12

£ 3

£ 6

6 qrs

4 qrs

£ 12

£ 3

£ 6

8 qrs-

6 qrs

£ 18

Total . . .

12 acres

£ 36

26 qrs

14 qrs

£ 42

And, finally, let us assume an unequal expansion of production
and cultivated area for the four soil categories:

TABLE Ic

Type of

Soil

Acres

Price of Production

Product

Rent

Grain

Rent

Money

Per Acre

Total

£ 3

1 qr

£ 3

£ 6

4 qrs

Usa

£ 6

£ 3

£ 15

15 qrs

£ 30

£ 3

£ 12

16 qrs

£ 36

Total . . .

12 acres

£ 36

36 qrs

24 qrs

£ 72

In the first place, the rent per acre remains the same in all these
cases — I, la, lb and Ic — for, in fact, the result of the same invest¬
ment of capital per acre of the same soil type has remained
unchanged. We have only assumed what is true of any country at
any given moment; namely, that various soil types exist in defi¬
nite ratios to the total cultivated area. And we also assumed what
is always true of any two countries being compared, or of the same
country at different periods, namely, that the proportions in which
the total cultivated area is distributed among the different soil
types vary.

In comparing la with I we see that if the cultivation of land in
all four categories increases in the same proportion a doubling

22*

6fi4 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

of the cultivated acreage doubles the total production, and that
the same applies to the rent in grain and money.

However, if we compare lb and then Ic with I, we see that in
both cases a tripling of the area under cultivation occurs. It in¬
creases in both cases from 4 acres to 12, but in lb classes A and B
contribute most to the increase, with A yielding no rent and B
yielding the smallest amount of differential rent. Thus, out of
the 8 newly cultivated acres, A and B account for 3 each, i.e. ,
6 together, whereas C and D account for 1 each, i.e., 2 together.
In other words, three-quarters of the increase is accounted for
by A and B, and only one-quarter by G and D. With this premise,
in lb compared with I the trebled area of cultivation does not
result in a trebled product, for the product does not increase from
10 to 30, but only to 26. On the other hand, since a considerable
part of the increase concerns A, which does not yield any rent,
and since the major part of the increase on better soils concerns
B, the rent in grain rises only from 6 to 14 quarters, and the rent
in money from £18 to £42.

But if we compare Ic with I, where the land yielding no rent does
not increase in area and the land yielding a minimum rent increases
but slightly, while G and D account for the major part of the in¬
crease, we find that when the cultivated area is trebled production
increases from 10 to 36 quarters, i.e., to more than three times its
original amount. The rent in grain increases from 6 to 24 quarters
or to four times its original amount; and similarly money-rent,
from £18 to £72.

In all these cases it is in the nature of things that the price of
the agricultural product remains unchanged. The total rental
increases in all cases with the extension of cultivation, unless it
takes place exclusively on the worst soil, which does not yield any
rent. But this increase varies. Should this extension involve the
better soil types and the total output, consequently, increase not
merely in proportion to the expansion of the area, but rather
more rapidly, then the rent in grain and money increases to the same
extent. Should it be the worst soil, and the types of soil close
to it, that are principally involved in the expansion (whereby it
is assumed that the worst soil represents a constant type), the
total rental does not increase in proportion to the extension of
cultivation. Thus, given two countries in which soil A, yielding
no rent, is of the same quality, the rental is inversely proportional
to the aliquot part represented by the worst soil and the inferior
soil types in the total area under cultivation, and therefore inverse¬
ly proportional to the output, assuming equal capital investments

FIRST FORM OF DIFFERENTIAL RENT

665

on equal total land areas. A relationship between the quantity
of the worst and the quantity of the better cultivated land in
the total land area of a given country thus has an opposite influ¬
ence on the total rental than the relationship between the quality
of the worst cultivated land and the quality of the better and
best has on the rent per acre and — other circumstances remain¬
ing the same — on the total rental. Confusion between these two
points has given rise to all kinds of erroneous objections raised
against differential rent.

The total rental, then, increases by the mere extension of culti¬
vation, and by the consequent greater investment of capital and
labour in the land.

But the most important point is this: Although it is our assump¬
tion that the ratio of rents per acre for the various kinds of soil re¬
mains the same, and therefore also the rate of rent considered
with reference to capital invested in each acre, yet the following
is to be observed: If we compare la with I, the case in which
the number of cultivated acres and the capital invested in them
have been proportionately increased, we find that as the total
production has increased proportionately to the expanded culti¬
vated area, i.e., as both have been doubled, so has the rental.
It has risen from £18 to £36, just as the number of acres has risen
from 4 to 8.

If we take the total area of 4 acres, we find that the total rental
amounted to £18 and thus the average rent, including the land
which does not yield any rent, is £41/s. Such a calculation might
be made, say, by a landlord owning all 4 acres; and in this way
the average rent is statistically computed for a whole country.
The total rental of £18 is obtained by the investment of a capital
of £10. We call the ratio of these two figures the rate of rent; in
the present case it is therefore 180%.

The same rate of rent obtains in la, where 8 instead of 4 acres
are cultivated, but all types of land have contributed to the
increase in the same proportion. The total rental of £36 yields
for 8 acres and an invested capital of £20 an average rent of
£4 llt per acre and a rate of rent of 180%.

But if we consider lb, where the increase has taken place mainly
upon two inferior categories of soil, we obtain a rent of £42 for 12
acres, or an average rent of £3*/B per acre. The total invested capi¬
tal is £30, and therefore the rate of rent =140%. The average rent
per acre has thus decreased by £1, and the rate of rent has fallen
from 180 to 140%. Here then we have a rise in the total rental
from £18 to £42, but a drop in average rent calculated per acre

666 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

as well as on the basis of capital; the drop takes place parallel
to an increase in production, but not proportionately. This occurs
even though the rent for all types of soil, calculated per acre as
well as on the basis of. capital outlay, remains the same. This
occurs because three-quarters of the increase is accounted for by
soil A, which does not yield any rent, and soil B, which yields
only minimum rent.

If the total expansion in Case lb had taken place solely on soil
A, we should have 9 acres on A, 1 acre on B, 1 acre on C and 1
acre on D. The total rental would be £18, the same as before; the
average rent for the 12 acres therefore would be £1*^ per acre;
and a rent of £18 on an invested capital of £30 would give a rate
of rent of 60%. The average rent, calculated per acre as well as
on the basis of invested capital, would have greatly decreased,
while the total rental would not have increased.

Finally, let us compare Ic with I and lb. Compared with I,
the area has been trebled, and also the invested capital. The total
rental is £72 for 12 acres, or £6 per acre — as against £4 l/2 in
Case I. The rate of rent on the invested capital (£72 : £30) is
240% instead of 180%. The total output has risen from 10 to
36 quarters.

Compared with lb, where the total number of cultivated acres,
the invested capital, and the differences between the cultivated
soil types are the same, but the distribution different, the output
is 36 quarters instead of 26 quarters, the average rent per acre is
£6 instead of £31/2, and the rate of rent with reference to the same
invested total capital is 240% instead of 140%.

No matter whether we regard the various conditions in tables
la, lb and Ic as existing simultaneously side by side in different
countries, or as existing successively in the same country, we
come to the following conclusions: So long as the price of grain
remains unchanged because the yield on the worst, rentless soil
remains the same; so long as the difference in the fertility of the
various cultivated types of soil remains the same; so long as the
respective outputs remain the same, hence, given equal capital
investments on equal aliquot parts (acres) of cultivated area in
every type of soil; so long as the ratio, therefore, between the rents
per acre on each category of soil is constant, and the rate of rent
on the capital invested in each plot of the same kind of soil is
constant: First, the rental constantly increases with the extension
of cultivated area and with the consequent increased capital in¬
vestment, except for the case where the entire increase is account¬
ed for by rentless land. Secondly, the average rent per acre (total

FIRST FORM OF DIFFERENTIAL RENT

667

rental divided by the total number of cultivated acres) as well as
the average rate of rent (total rental divided by the invested total
capital) may vary very considerably; and, indeed, both change
in the same direction, but in different proportions to each other.
If we leave out of consideration the case in which the expansion
takes place only on the rentless soil A, we find that the average
rent per acre and the average rate of rent on the capital invested
in agriculture depend on the proportions which the various classes
of soil constitute in the total cultivated area; or, what amounts
to the same thing, on the distribution of the total employed
capital among the kinds of soil of varying fertility. Whether
much or little land is cultivated, and whether the total rental
is therefore larger or smaller (with the exception of the case in
which the expansion is confined to A), the average rent per acre,
or the average rate of rent on invested capital, remains the same
as long as the proportions of the various categories of soil in the
total cultivated area remain unchanged. In spite of an increase,
even a very considerable one, in the total rental with the exten¬
sion of cultivation and expansion of capital investment, the aver¬
age rent per acre and the average rate of rent on capital decrease
when the extension of rentless land, and land yielding only little
differential rent, is greater than the extension of the superior one
yielding greater rent. Conversely, the average rent per acre and
the average rate of rent on capital increase proportionately to
the extent that better land constitutes a relatively greater part of
the total area and therefore employs a relatively greater share of
the invested capital.

Hence, if we consider the average rent per acre, or hectare, of
the total cultivated land as is generally done in. statistical works,
in comparing either different countries in the same period, or
different periods in the same country, we find that the average
level of rent per acre, and consequently total rental, corresponds
to a certain extent (although by no means identical, but rather
a more rapidly increasing extent) to the absolute, not to the
relative, fertility of the soil in a given country; that is, to the
average amount of produce which it yields from the same area.
For the larger the share of superior soils in the total cultivated
area, the greater the output for equal capital investments on equal¬
ly large areas of land; and the higher the average rent per acre.
In the reverse case the opposite takes place. Thus, rent does not
appear to be determined by the ratio of differential fertility, but
by the absolute fertility, and the law of differential rent appears
invalid. For this reason certain phenomena are disputed, or an

668 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

attempt is made to explain them by non-existing differences in
average prices of grain and in the differential fertility of culti¬
vated land, -whereas such phenomena are merely due to the fact
that the ratio of total rental to total area of cultivated land or
to total capital invested in the land — as long as the fertility of
the rentless soil remains the same and therefore the prices of pro¬
duction, and the differences between the various kinds of soil
remain unchanged — is determined not merely by the rent per
acre or the rate of rent on capital, but quite as much by the rela¬
tive number of acres of each type of soil in the total number of
cultivated acres; or, what amounts to the same thing, by the
distribution of the total invested capital among the various types
of soil. Curiously enough, this fact has been completely over¬
looked thus far. At any rate, we see (and this is important for our
further analysis) that the relative level of the average rent per
acre, and the average rate of rent (or the ratio of the total rental
to the total capital invested in the land), may rise or fall by
merely extensively expanding cultivation, as long as prices remain
the same, the differential fertilities of the various soils remain
unaltered, and the rent per acre, or rate of rent for capital invest¬
ed per acre in every type of soil actually yielding rent, i.e., for
all capital actually yielding rent, remains unchanged.

It is necessary to make the following additional points with ref¬
erence to the form of differential rent considered under heading I;
they also apply in part to differential rent II:

First, it was seen that the average rent per acre, or the average
rate of rent on capital, may increase with an extension of cultiva¬
tion when prices are stationary and the differential fertility of
the cultivated plots of land remains unaltered. As soon as all
the land in a given country has been appropriated, and invest¬
ments of capital in land, cultivation, and population have
reached a definite level — all given conditions as soon as the
capitalist mode of production becomes the prevailing one and also
encompasses agriculture — the price of uncultivated land of varying
quality (merely assuming differential rent to exist) is determined
by the price of the cultivated plots of land of the same quality
and equivalent location. The price is the same — after deducting
the cost of bringing the new land into cultivation — even though
this land does not yield any rent. The price of the land is, indeed,
nothing but the capitalised rent. But even in the case of culti¬
vated land, the price pays only for future rents, as, for instance.

FIRST FORM OF DIFFERENTIAL RENT

669

when the prevalent interest rate is 5% and the rent for twenty
years is paid at one time in advance. When land is sold, it is sold
as land yielding rent, and the prospective character of the rent
(which is here considered as a product of the soil, but it only seems
to be that) does not distinguish the uncultivated from the culti¬
vated land. The price of the uncultivated land, like its rent —
the price of which represents the contracted form of the latter —
is quite illusory as long as the land is not actually used. But it
is thus determined a priori and is realised as soon as a purchaser
is found. Hence, while the actual average rent in a given country
is determined by its actual average annual rental and the relation
of the latter to the total cultivated area, the price of the unculti¬
vated land is determined by the price of the cultivated land,
and is therefore but a reflection of the capital invested in the culti¬
vated land and the results obtained therefrom. Since all land
with the exception of the worst yields rent (and this rent, as we shall
see under the head of differential rent II, increases with the quan¬
tity of capital and corresponding intensity of cultivation), the
nominal price of uncultivated plots of land is thus formed, and
they thus become commodities, a source of wealth for their
owners. This explains at the same time, why the price of land in¬
creases in a whole region, even in the uncultivated part (Opdyke).
Land speculation, for instance, in the United States, is based
solely on this reflection thrown by capital and labour on unculti¬
vated land.

Secondly , progress in extending cultivated land generally takes
place either toward inferior soil or on the various given types
of soil in varying proportions, depending on the manner in which
they are met. Extension on inferior soil is naturally never made
voluntarily, but can only result from rising prices, assuming a
capitalist mode of production, and can only result from necessity
under any other mode of production. However, this is not abso¬
lutely so. Poor soil may be preferred to a relatively better soil
on account of location, which is of decisive importance for every
extension of cultivation in young countries; furthermore, even
though the soil formation in a certain region may generally be
classified as fertile, it may nevertheless consist of a motley con¬
fusion of better and worse soils, so that the inferior soil may have
to be cultivated if only because it is found in the immediate vicin¬
ity of the superior soil. If inferior soil is surrounded by superior
soil, then the latter gives it the advantage of location in compari¬
son with more fertile soil which is not yet, or is about to become,
part of the cultivated area.

C70 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Thus, the State of Michigan was one of the first Western States
to become an exporter of grain. Yet its soil on the whole is poor.
But its proximity to the State of New York and its water-ways
via the Lakes and Erie Canal initially gave it the advantage over
the States endowed by Nature with more fertile soil, but situated
farther to the West. The example of this State, as compared with
the State of New York, also demonstrates the transition from
superior to inferior soil. The soil of the State of New York, par¬
ticularly its western part, is incomparably more fertile, especially
for the cultivation of wheat. This fertile soil was transformed
into infertile soil by rapacious methods of cultivation, and now
the soil of Michigan appeared as the more fertile.

“In 1838, wheaten flour was shipped at Buffalo for the West;
and the wheat-region of New York, with that of Upper Canada,
were the main sources of its supply. Now, after only twelve years,
an enormous supply of wheat and flour is brought from the West,
along Lake Erie, and shipped upon the Erie Canal for the East, at
Buffalo and the adjoining port of Blackrock.... The effect of
these large arrivals from the Western States — which were un¬
naturally stimulated during the years of European famine... has
been to render wheat less valuable in western New York, to make
the wheat culture less remunerative, and to turn the attention
of the New York farmers more to grazing and dairy husbandry,
fruit culture, and other branches of rural economy, in which they
think the North-West will be unable so directly to compete with
them.” (J. W. Johnston, Notes on North America, London, 1851,
I, pp. 220-23.)

Thirdly, it is a mistaken assumption that the land in colonies
and, in general, in young countries which can export grain at
cheaper prices, must of necessity be of greater natural fertility.
The grain is not only sold below its value in such cases, but be¬
low its price of production, i.e., below the price of production
determined by the average rate of profit in the older countries.

The fact that we, as Johnston says (p. 223), “are accustomed to
attach the idea of great natural productiveness and of boundless
tracts of rich land, to those new States from which come the large
supplies of wheat that are annually poured into the port of Buffa¬
lo, ” is primarily the result of economic conditions. The entire
population of such an area as Michigan, for instance, is at first
almost exclusively engaged in farming, and particularly in pro¬
ducing agricultural mass products, which alone can be exchanged
for industrial products and tropical goods. Its entire surplus-
production appears, therefore, in the form of grain. This from

FIRST FORM OF DIFFERENTIAL RENT

671

the outset sets apart the colonial states founded on the basis of
the modern world-market from those of earlier, particularly an¬
cient, times. They receive through the world-market finished
products, such as clothing and tools which they would have to
produce themselves under other circumstances. Only on such
a basis were the Southern States of the Union enabled to make
cotton their staple crop. The division of labour on the world-market
makes this possible. Hence, if they seem to have a large surplus-
production considering their youth and relatively small popula¬
tion, this is not so much due to the fertility of their soil, nor the
fruitfulness of their labour, but rather to the one-sided form of
their labour, and therefore of the surplus-produce in which such
labour is incorporated.

Furthermore, a relatively inferior soil which is newly cultivat¬
ed and never before touched by civilisation provided the climatic
conditions are then not completely unfavourable, has accumulat¬
ed a great deal of plant food that is easily assimilated — at least in
the upper layers of the soil — so that it will yield crops for a long
time without the application of fertilisers and even with very
superficial cultivation. The western prairies have the additional ad¬
vantage of hardly requiring any clearing expenses since Nature
has made them arable.333 In less fertile areas of this kind, the
surplus is not produced as a result of the high fertility of the soil,
i.e., the yield per acre, but as a result of the large acreage which
may be superficially cultivated, since such land costs the culti¬
vator nothing, or next to nothing as compared with older coun¬
tries. This is the case, for instance, where share cropping exists,
as in parts of New York, Michigan, Canada, etc. A family super¬
ficially cultivates, say, 100 acres, and although the output per
acre is not large, the output from 100 acres yields a considerable
surplus for sale. In addition to this, cattle may be grazed on
natural pastures at almost no cost, without requiring artificial grass
meadows. It is the quantity of the land, not its quality, which
is decisive here. The possibility of such superficial cultivation

*,a [It is precisely the rapidly growing cultivation of such prairie or
steppe regions which of late turns the renowned statement of Malthus, that
“the population is a burden upon the means of subsistence,” into ridicule,
and produced in its stead the agrarian lament that agriculture, and with
it Germany, will be ruined, unless the means of subsistence which are a bur¬
den upon the population are forcibly kept away from them. The cultivation
of these steppes, prairies, pampas, llanos, etc., is nevertheless only in its
beginning; its revolutionising effect on European agriculture will, therefore,
make itself felt in the future even more so than hitherto. — F. E .]

672 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

is naturally more or less rapidly exhausted, namely, in inverse
proportion to the fertility of the new soil and in direct proportion
to the export of its products. “And yet such a country will give
excellent first crops, even of Wheat, and will supply to those who
skim the first cream off the country, a large surplus of this grain
to send to market” (1. c., p. 224). Property relations in countries
with maturer civilisations, with their determination of the
price of uncultivated soil by that of the cultivated, etc., make
such an extensive economy impossible.

That this soil, therefore, need not be exceedingly rich, as Ri¬
cardo imagines, nor that soils of equal fertility need be cultivated,
may be seen from the following. In the State of Michigan 465,900
acres were planted in 1848 to wheat which yielded 4,739,300
bushels, or an average of 101/ 1 bushels per acre; after deducting
seed grain, this leaves less than 9 bushels per acre. Of the 29 coun¬
ties of this State, 2 produced an average of 7 bushels, 3 an average
of 8 bushels, 2 — 9, 7 — 10, 6 — 11, 3 — 12, 4 — 13 bushels, and only
one county produced an average of 16 bushels, and another 18
bushels per acre (1. c., p. 225).

For practical cultivation higher soil fertility coincides with
greater capability of immediate exploitation of such fertility. The
latter may be greater in a naturally poor soil than in a naturally
rich one; but it is the kind of soil which a colonist will take up
first, and must take up when capital is wanting.

Finally, the extension of cultivation to larger areas — aside
from the case just mentioned, in which recourse must be had to
soil inferior than that cultivated hitherto — to the various kinds
of soil from A to D, thus, for instance, the cultivation of larger
tracts of B and C does not by any means presuppose a previous rise
in grain prices any more than the preceding annual expansion
of cotton spinning, for instance, requires a constant rise in yarn
prices. Although considerable rise or fall in market-prices affects
the volume of production, regardless of it there is in agriculture
(just as in all other capitalistically operated lines of production)
nevertheless a continuous relative over-production, in itself iden¬
tical with accumulation, even at those average prices whose
level has neither a retarding nor exceptionally stimulating effect
on production. Under other modes of production this relative over¬
production is effected directly by the population increase, and
in colonies by steady immigration. The demand increases constant¬
ly, and, in anticipation of this, new capital is continually in¬
vested in new land, although this varies with the circumstances
for different agricultural products. It is the formation of new capi-

FIRST FORM OF DIFFERENTIAL RENT

673

tals which in itself brings this about. But so far as the individual
capitalist is concerned, he measures the volume of his production
by that of his available capital, to the extent that he can still
control it himself. His aim is to capture as big a portion as pos¬
sible of the market. Should there be any over-production, he will
not take the blame upon himself, but places it upon his competi¬
tors. The individual capitalist may expand his production by
appropriating a larger aliquot share of the existing market or
by expanding the market itself.

CHAPTER XL

SECOND FORM OF DIFFERENTIAL RENT
(DIFFERENTIAL RENT II)

Thus far we have considered differential rent only as the result
of varying productivity of equal amounts of capital invested in
equal areas of land of different fertility, so that differential rent
was determined by the difference between the yield from the cap¬
ital invested in the worst, rentless soil and that from the capital
invested in superior soil. We had side by side capitals invested
in different plots of land, so that every new investment of capital
signified a more extensive cultivation of the soil, an expansion
of cultivated area. In the last analysis, however, differential rent
was by its nature merely the result of the different productivity
of equal capitals invested in land. But can it make any difference
if capitals of different productivity are invested successively in
the same plot of land or side by side in different plots of land,
provided the results are the same?

To begin with, there is no denying that, in so far as the forma¬
tion of surplus-profit is concerned, it is immaterial whether £3
in production price per acre of A yield 1 qr, so that £3 is the
price of production and the regulating market-price of 1 qr,
while £3 in production price per acre of B yield 2 qrs, and there¬
by £3 of surplus-profit, similarly, £3 in production price per
acre of C yield 3 qrs and £6 of surplus-profit, and, finally, £3
in production price per acre of D yield 4 qrs and £9 of surplus-
profit; or whether the same result is achieved by applying these
£12 in production price, or £10 of capital, with the satne success
in the same sequence upon one and the same acre. It is in both
cases a capital of £10, whose value portions of £2 Vs each are
successively invested— whether in four acres of varying fertility
side by side, or successively in one and the same acre of land —

SECOND FORM OF DIFFERENTIAL RENT

675

and because of their varying outputs, one portion yields no
surplus-profit, whereas the other portions yield surplus-profit
proportionate to their difference in yield with respect to rentless
investment.

The surplus-profit and the various rates of surplus-profit for
the different value portions of capital are formed in the same man¬
ner in both cases. And the rent is nothing but a form of this sur¬
plus-profit, which constitutes its substance. But at any rate, in the
second method, there are some difficulties concerning the trans¬
formation of surplus-profit into rent, this change of form, which
includes the transfer of surplus-profit from the capitalist tenant
to the landowner. This accounts for the obstinate resistance of
English tenants to official agricultural statistics. And it accounts
for their struggle against the landlords over the determination
of actual results derived from their capital investment (Morton).
For rent is fixed when land is leased, and after that the surplus-
profit arising from successive investments of capital flows into
the pockets of the tenant as long as the lease lasts. This is why
the tenants have fought for long leases, and, on the other hand,
due to the greater power of the landlords, an increase in the num¬
ber of tenancies at will has taken place, i.e., leases which can be
cancelled annually.

It is therefore evident from the very outset that, even if immate¬
rial for the law of formation of surplus-profit, it makes a consid¬
erable difference for the transformation of surplus-profit into
ground-rent whether equal capitals are invested side by side in
equal areas of land with unequal results, or whether they are
invested successively in the same land. The latter method con¬
fines this transformation, on the one hand, within narrower
limits, on the other hand, within more variable limits. For this
reason, the work of the tax-assessor, as Morton shows in his
Resources of Estates, becomes a very important, complicated and
difficult profession in countries practising intensive cultivation
(and, economically speaking, we mean nothing more by intensive
cultivation than the concentration of capital upon the same plot
rather than its distribution among several adjoining pieces of
land). If soil improvements are of a more permanent nature the
artificially increased differential fertility of the soil coincides
with its natural differential fertility as soon as the lease expires,
and therefore the assessment of the rent corresponds to the deter¬
mination of the rent on plots of different fertilities in general.
On the other hand, in so far as the formation of surplus-profit
is determined by the magnitude of operating capital, the amount

676 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

of rent for a certain amount of operating capital is added
to the average rent of the country and thus provision is made for
the new tenant to command sufficient capital to continue culti¬
vation in the same intensive manner.

In the study of differential rent II, the following points are still
to be emphasised.

First, its basis and point of departure, not just historically, but
also in so far as concerns its movements at any given period of
time, is differential rent I, that is, the simultaneous cultivation
side by side of soils of unequal fertility and location; in other
words, the simultaneous application, side by side, of unequal
portions of the total agricultural capital upon plots of land of
unequal quality.

Historically this is self-evident. In the colonies, colonists have
but little capital to invest; the principal production agents are la¬
bour and land. Every individual head of family seeks for himself
and his kin an independent field of employment alongside his
fellow-colonists. This must generally be the case in agriculture
proper even under pre-capitalist modes of production. In the case
of sheep-herding and cattle-raising, in general, as independent
lines of production, exploitation of the soil is more or less common
and extensive from the very outset. The capitalist mode of pro¬
duction has for its point of departure former modes of production
in which the means of production were, in fact or legally, the
property of the tiller himself, in a word, from a handicraft-like
pursuit of agriculture. It is in the nature of things that the latter
gives way but gradually to the concentration of means of produc¬
tion and their transformation into capital, as against direct pro¬
ducers transformed into wage-labourers. In so far as the capitalist
mode of production is manifested here typically, it oceurs at first
particularly in sheep-herding and cattle-raising. But it is thus
not manifested in a concentration of capital upon a relatively
small area of land, but in production on a larger scale, economis¬
ing in the expense of keeping horses, and in other production
costs; but, in fact, not by investing more capital in the same land.
Furthermore, in accordance with the natural laws of field hus¬
bandry, capital — used here, at the same time, in the sense of means
of production already produced — becomes the decisive element
in soil cultivation when cultivation has reached a certain level
of development and the soil has been correspondingly exhausted.
So long as the tilled area is small in comparison with the untilled,
and so long as the -soil strength has not been exhausted (and

SECOND FORM OF DIFFERENTIAL RENT

677

this is the case when cattle-raising and meat consumption prevail in
the period before agriculture proper and plant nutrition have
become dominant), the new developing mode of production is
opposed to peasant production mainly in the extensiveness of
the land being tilled for a capitalist, in other words, again in
the extensive application of capital to larger areas of land. It
should therefore be remembered from the outset that differential
rent I is the historical basis which serves as a point of departure.
On the other hand, the movement of differential rent II at any
given moment occurs only within a sphere which is itself but
the variegated basis of differential rent I.

Secondly , in the differential rent in form II, the differences in
distribution of capital (and ability to obtain credit) among ten¬
ants are added to the differences in fertility. In manufacturing
proper, each line of business rapidly develops its own minimum
volume of business and a corresponding minimum of capital,
below which no individual business can be conducted successful¬
ly. In the same way, each line of business develops a normal
average amount of capital above this minimum, which the bulk of
producers should, and do, command. Alarger volume of capital can
produce extra profit; a smaller volume does not so much as yield
the average profit. The capitalist mode of production spreads
in agriculture but slowly and unevenly, as may be observed in
England, the classic land of the capitalist mode of production in
agriculture. In so far as the free importation of grain does not
exist, or its effect is but limited because the volume is small,
producers working inferior soil, and thus under worse than
average conditions of production, determine the market-price. A
large portion of the total mass of capital invested in husband¬
ry, and in general available to it, is in their hands.

It is true that the peasant, for example, expends much labour
on his small plot of land. But it is labour isolated from objective
social and material conditions of productivity, labour robbed and
stripped of these conditions.

This circumstance enables the actual capitalist tenants to ap¬
propriate a portion of surplus-profit — a fact which would not ob¬
tain, at least so far as this point is concerned, if the capitalist
mode of production were as evenly developed in agriculture as
in manufacture.

Let us first consider just the formation of surplus-profit with
differential rent II, without for the present bothering about the
conditions under which the transformation of this surplus-profit
into ground-rent may take place.

678 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

It is then evident that differential rent II is merely differently
expressed differential rent I, but identical to it in substance.
The variation in fertility of various soil types exerts its influence
in the case of differential rent I only in so far as unequal results
are attained by capitals invested in the soil, i.e., the amount of
products obtained either with respect to equal magnitudes of
capital, or proportionate amounts. Whether this inequality takes
place for various capitals invested successively in the same land
or for capitals invested in several plots qf differing soil type —
this can change nothing in the difference in fertility nor in its
product and can therefore change nothing in the formation of
differential rent for the more productively invested portions of
capital. It is still the soil which, now as before, shows different
fertility with the same investment of capital, save that here the
same soil performs for a capital successively invested in differ¬
ent portions what various kinds of soil do in the case of differ¬
ential rent I for different equal portions of social capital invested
in them.

If the same capital of £10, which is shown in Table I to be in¬
vested in the form of independent capitals of £2l/z each by vari¬
ous tenants in each acre of the four soil types A, B, C and D, were
instead successively invested in one and the same acre D, so that
the first investment yielded 4 qrs, the second 3, the third 2, and
the fourth 1 qr (or in the reverse order), then the price of the quar¬
ter furnished by the least productive capital, namely =£3, would
not yield any differential rent, but would determine the price of
production, so long as the supply of wheat whose price of produc¬
tion is £3 were needed. And since our assumption is that the capi¬
talist mode of production prevails, so that the price of £3 includes
the average profit made by a capital of £2V2 generally, the other
three portions of £21/2 each will yield surplus-profit in accordance
with the difference in output, since this output is not sold at its
own price of production, but at the price of production of the least
productive investment of £2,/2; the latter investment does not
yield any rent and the price of its products is determined by the
general law of prices of production. The formation of surplus-profit
would be the same as in Table I.

Once again it is seen here that differential rent II presupposes
differential rent I. The minimum output obtained from a capital
of £21/*i i.e., from the worst soil, is here assumed to be 1 qr.
Assumed, also, is that aside from the £2 1/2 which yield 4 qrs and
for which he pays a differential rent of 3 qrs, the tenant operating
with soil type D invests in this same soil £2 l/2 which yield only

SECOND FORM OF DIFFERENTIAL RENT

679

1 qr, like the same capital upon the worst soil A. This would be an
investment of capital which does not yield rent, since it returns
to him only average profit. There would be no surplus-profit which
could be transformed into rent. On the other hand, this decreas¬
ing yield of the second investment of capital in D would have
no influence on the rate of profit. It would be the same as though
£21/ij had been invested anew' in an additional acre of soil type A,
a circumstance which would in no way affect the surplus-profit
and, therefore, the differential rent of soils A, B, C and D. But
for the tenant, this additional investment of £2 1/2 in D would
have been quite as profitable as, in accordance with our assump¬
tion, the investment of the original £2x/2 per acre of D, although
the latter yields 4 qrs. Furthermore, if two other investments
of £2 1/2 each should yield an additional output of 3 qrs and 2 qrs
respectively, a decrease would have taken place again compared
with the output from the first investment of £2 */2 in D, which
yielded 4 qrs, i.e., a surplus-profit of 3 qrs. But it would be mere¬
ly a decrease in the amount of surplus-profit, and would not
affect either the average profit or the regulating price of produc¬
tion. The latter would be the case only if the additional produc¬
tion yielding this decreasing surplus-profit made the production
upon A superfluous, and threw acre A out of cultivation. In such
case, the decreasing productiveness of the additional investment
of capital in acre D would be accompanied by a fall in the price
of production, for instance, from £3 to £1*/,, if acre B would
become the rentless soil and regulator of the market-price.

The output from D would now be=4+l + 3+2 = 10 qrs whereas
formerly it was=4 qrs. But the price per quarter as regulated by
B would have fallen to El1/^ The difference between D and B
would be = 10 — 2 = 8 qrs, at £1*/* Per quarter=£12, whereas the
money-rent from D was previously = £9. This should be noted.
Calculated per acre, the magnitude of rent would have risen by
33V3% jn spite of the decreasing rate of surplus-profit on the two
additional capitals of £2'/* each.

We see from this to what highly complicated combinations
differential rent in general, and in form II coupled with form I,
in particular, may give rise, whereas Ricardo, for instance, treats
it very one-sidedly and as though it were a simple matter. As in
the above case, a fall in the regulating market-price and at the same
time rise in rent from fertile soils may take place so that both the
absolute product and the absolute surplus-product increase. (In
differential rent I, indescending order, the relative surplus-product
and thus the rent per acre may increase, although the absolute

680 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

surplus-product per acre remains constant or even decreases.)
But at the same time, productiveness of the investments of capi¬
tal made successively in the same soil decreases, although a large
portion of them falls to the more fertile soils. From a certain point
of view — as concerns both output and prices of production — the
productivity of labour has risen. But from another point of view,
it has decreased because the rate of surplus-profit and the sur¬
plus-product per acre decrease for the various investments of
capital in the same land.

Differential rent II, with decreasing productiveness of succes¬
sive investments of capital, would necessarily be accompanied
by a rise in price of production and an absolute decrease in pro¬
ductivity only if investments of capital could be made in none
but the worst soil A. If an acre of A, which with an investment of
capital of £2 yielded 1 qr at a price of production of £3, should
only yield a total of D/j qrs with an additional outlay of £21/s,
i.e., a total investment of £5, then the price of production of
this 1V2 qrs=£6, or that of 1 qr=£4. Every decrease in produc¬
tivity with a growing investment of capital would here mean a
relative decrease in output per acre, whereas upon superior soils
it would only signify a decrease in the superfluous surplus-product.

But by the nature of things, with the development of intensive
cultivation, i.e., with successive investments of capital in the
same soil, this will take place more advantageously, or to a great¬
er extent on better soils. (We are not referring to permanent im¬
provements by which a hitherto useless soil is converted into
useful soil .) The decreasing productiveness of successive investments
of capital must, therefore, have principally the effect indicated
above. The better soil is selected because it affords the best prom¬
ise that capital invested in it will be profitable, since it contains
the most natural elements of fertility, which need but be utilised.

When, after the abolition of the Corn Laws, cultivation in Eng¬
land became still more intensive, a great deal of former wheat
land was devoted to other purposes, particularly cattle pastures,
while the fertile land best suited for wheat was drained and other¬
wise improved. The capital for wheat cultivation was thus con¬
centrated in a more limited area.

In this case — and all possible surplus rates between the greatest
surplus-product of the best soil and the output of rentless soil A
coincide here with an absolute, rather than a relative, increase in
surplus-product per acre — the newly formed surplus-profit (poten¬
tial rent) does not represent a portion of a former average profit
transformed into rent (a portion of the output in which the

SECOND FORM OF DIFFERENTIAL RENT

681

average profit formerly was expressed) but an additional surplus-
profit, which is transformed out of this form into rent.

On the other hand, only in such case where the demand for
grain increased to such an extent that the market-price rose above
the price of production of A, so that the surplus-product of A, B,
or any other kind of soil could be supplied only at a price higher
than £3 would the decrease in yield from an additional invest¬
ment of capital in any of the soil types A, B, C and D be accom¬
panied by a rise in price of production and the regulating market-
price. In so far as this lasted for a lengthy period of time without
resulting in the cultivation of additional soil A (of at least the
quality of A), or without a cheaper supply resulting from other
circumstances, wages would rise in consequence of the increase in
the price of bread, everything else being equal, and the rate of
profit would fall accordingly. In this case, it would be immaterial,
whether the increased demand were satisfied by bringing under
cultivation soil of inferior quality than A, or by additional
investments of capital, in any of the four types of soil. Differen¬
tial rent would then increase together with a falling rate of profit.

This one case, in which the decreasing productiveness of sub¬
sequent additional capitals invested in already cultivated soils
may lead to an increase in price of production, a fall in rate of
profit, and the formation of higher differential rent — for the latter
would increase under the given circumstances upon all kinds of
soil just as though soil of inferior quality than A were regulating
the market-price— has been labelled by Ricardo as the only case,
the normal case — to which he reduces the entire formation of
differential rent II.

This would also be the case if only type A soil were cultivat¬
ed and successive investments of capital in it were not accom¬
panied by a proportional increase in produce.

Here then, in the case of differential rent II, one completely
loses sight of differential rent I.

Except for this case, in which the supply from the cultivated
soils is either insufficient and the market-price thus continually
higher than the price of production until new additional soil of
inferior quality is taken under cultivation, or until the total prod¬
uct from the additional capital invested in various kinds of soil
can be supplied only at a higher price of production than that
hitherto prevailing — save for this case, the proportional drop
in productivity of the additional capitals leaves the regulating
price of production and the rate of profit unchanged. For the rest,
three additional cases are possible:

682 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

a) If the additional capital invested in any one of the types of
soil A, B, C or D yields only the rate of profit determined by the
price of production of A, then no surplus-profit, and therefore no
potential rent, is formed, any more than there would be if addi¬
tional type A soil had been cultivated.

b) If the additional capital yields a larger product, new surplus-
profit (potential rent) is, of course, formed provided the regulating
price remains the same. This is not necessarily the case; it is not
the case, in particular, when this additional production throws
soil A out of cultivation and thus out of the sequence of compet¬
ing soils. In this case, the regulating price of production falls.
If this were accompanied by a fall in wages, or if the cheaper
product were to enter into the constant capital as one of its ele¬
ments, the rate of profit would rise. If the increased productivity
of the additional capital had taken place upon the best soils C and
D, it would depend entirely upon the degree of increased produc¬
tivity and the amount of additional new capital to what extent
the formation of increased surplus-profit (and thus increased rent)
would be associated with the fall in prices and the rise in the rate
of profit. The latter may also rise without a fall in wages, through
a cheapening of the elements of constant capital.

c) If the additional investment of capital takes place with de¬
creasing surplus-profit, but in such manner that the yield from
the additional outlay still leaves a surplus above the yield from
the same capital invested in A, a new formation of surplus-profit
takes place under all circumstances, unless the increased supply
excludes soil A from cultivation. This may take place simulta¬
neously upon D, C, B and A. But, on the other hand, if the worst
soil A is squeezed out of cultivation, then the regulating price
of production falls and it will depend upon the relation between
the reduced price of 1 qr and the increased number of quarters
forming surplus-profit whether the surplus-profit expressed in
money, and consequently the differential rent, rises or falls.
But at any rate, it is noteworthy here that with decreasing sur¬
plus-profit from successive investments of capital the price of
production may fall, instead of rising, which it seemingly should
do at first sight.

These additional investments of capital with decreasing surplus
yields correspond entirely to the case in which, e.g., four new inde¬
pendent capitals of £2 1/2 each would be invested in soils with fer¬
tility between A and B, B and C, C and D, and yielding l1/,, 21/,,
22/s, and 3 qrs respectively. Surplus-profit (potential rent) would
take shape on all these soils for all four additional capitals, al-

SECOND FORM OF DIFFERENTIAL RENT

683

though the rate of surplus-profit, compared with that for the same
investment of capital on the correspondingly better soil, would
have decreased. And it would be immaterial whether these four
capitals were invested in D, etc., or distributed between D and A.

We now come to an essential difference between the two forms
of differential rent.

Under differential rent I, with constant price of production and
constant differences, the average rent per acre, or the average
rate of rent on capital, may increase together with the rental. But
the average is a mere abstraction. The actual amount of rent,
calculated per acre or with respect to capital, remains the same
here.

On the other hand, under the same conditions, the amount
of rent calculated per acre may increase although the rate of
rent, measured relative to invested capital, remains the same.

Let us assume that production is doubled by the investment
of £5 instead of £21/2 in each of the soils A, B, C and D, i.e.,
a total of £20 instead of £10, and that the relative fertility re¬
mains unchanged. This would be tantamount to cultivating 2
instead of 1 acre of each of these kinds of soil at the same cost.
The rate of profit would remain the same; also its relation to sur¬
plus-profit or rent. But if A were now to yield 2 qrs, B — 4, C — 6,
and D — 8, the price of production would nevertheless remain
£3 per quarter because this increase is not due to doubled fertility
with the same capital, but to the same proportional fertility with
a doubled capital. The two quarters of A would now cost £6 just
as 1 qr cost £3 before. The profit would have doubled on all four
soils, but only because the invested capital was doubled. In the
same proportion, however, the rent would also have been doubled;
it would be 2 qrs for B instead of 1, 4 qrs for C instead of 2, and
6 for D instead of 3; and correspondingly, the money-rent for B, C
and D would now be £6, £12, and £18 respectively. Like the
yield per acre, the rent in money per acre would be doubled, and,
consequently, also the price of the land whereby this money-rent
is capitalised. Calculated in this manner, the amount of rent in
grain and money increases, and thus the price of land, because
the standard used in its computation, i.e., the acre, is an area of
constant magnitude. On the other hand, calculated as rate of
rent on invested capital, there is no change in the proportional
amount of rent. The total rental of 36 is to the invested capital
of 20 as the rental of 18 is to the invested capital of 10. The same
holds true for the ratio of money-rent from each type of soil to
the capital invested in it; for instance, in C, £12 rent is to £5

684 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

capital as £6 rent was formerly to £2VS capital. No new differ¬
ences arise here between the invested capitals, but new surplus-
profits do, merely because the additional capital is invested in
one of the rent-bearing soils, or in all of them, with the same
proportional yield as previously. If this double investment
took place, for example, only in C, the differential rent between
C, B and D, calculated with respect to capital, would remain the
same: for when the amount of rent obtained from C is doubled, so
is the invested capital.

This shows that the amount of rent in produce and money per
acre, and therefore the price of land, may rise, while the price of
production, the rate of profit, and the differences remain un¬
changed (and therefore the rate of surplus-profit or of rent, cal¬
culated with respect to capital, remains unchanged).

The same may take place with decreasing rates of surplus-
profit, and therefore of rent, that is, with decreasing productivity
of the additional outlays of capital that still yield rent. If the
second investments of capital of £2V2 had not doubled the output,
but B had yielded only 3^ qrs, C — 5 qrs, and D — 7* qrs, then the
differential rent for the second £2 x/2 of capital in B would be
only 1/i qr instead of 1, on C— 1 qr instead of 2 and on D— 2 qrs
instead of 3. The proportions between rent and capital for the two
successive investments would then be as follows:

First Investment Second Investment

Rent £ 3,

Capital £ 2l/2

Rent £ l1/,,

Capital £ 21 /2

.. £ fi,

- S 2>/s

n £ 3,

" £ 2 V,

» £ 9,

- e 2l/j

" £ 6,

.. £ 21/1

In spite of this decreased rate of relative productivity of capital,
and thus of the surplus-profit calculated on capital, the rent in
grain and money would have increased on B from 1 to l1/2 qrs
(from £3 to £41/2), on C— from 2 to 3 qrs (from £6 to £9), and
on D — from 3 to 5 qrs (from £9 to £15). In this case, the differ¬
ences for the additional capitals, compared with the capital in¬
vested in A, would have decreased, the price of production would
have remained the same, but the rent per acre, and consequently
the price of land per acre, would have risen.

The combinations of differential rent II, which presupposes
differential rent I as its basis, will now be taken up.

* In the German 1894 edition this reads: 6 qrs. — Ed.

CHAPTER X LI

DIFFERENTIAL RENT II.-FIRST CASE:
CONSTANT PRICE OF PRODUCTION

The assumption here implies that the market-price is regulated
as before by the capital invested in the worst soil A.

I. If the additional capital invested in any one of the rent-
bearing soils — B, C, D— produces only as much as the same capi¬
tal upon soil A, i.e., if it yields only the average profit at the
regulating price of production, but no surplus-profit, then the
effect upon the rent is nil. Everything remains as before. It is
the same as though an arbitrary number of acres of A quality,
i.e., of the worst soil, has been added to the cultivated area.

II. The additional capitals yield additional produce proportion¬
al to their magnitude on every one of the various soils; in other
words, the volume of production grows according to the specific
fertility of each soil type — in proportion to the magnitude of
the additional capital. In Chapter XXXIX, we started with the
following Table I:

Type of

Soil

Acres

Capi¬

tal

Profit

Price

Prod.

Out¬

put

Qrs

Sell¬

ing

Price

Rent

Qrs £

Rate of
Sur¬
plus-
Proiit

2V,

2l/j

V-

120%

2V,

240%

21/*

360%*

Total . . .

* In the German 1894 edition this column reads respectively: 12%,
24%, 36%. — Ed.

G86 transformation of surplus-profit into ground-rent

This is now transformed into:

TABLE //

a.—

E-GO

Acres

Capital

Profit

Price of
Prod.

Output

Qrs

Selling

Price

Proceeds

Rent

Rate of
Surplus-
Pront

Qrs

2V2-f-2»/*=5

21/2+2»/l=5

2‘/2+2V2=5

2‘/2+2*/2=5

IgSfl

■

It is not necessary in this case that the investment of capital
be doubled in all soils, as in the table. The law is the same so
long as additional capital is invested in one, or several, of the
rent-bearing soils, no matter in what proportion. It is only neces¬
sary that production should increase upon every soil in the same
ratio as the capital. The rent increases here merely in consequence
of an increased investment of capital in the soil, and in proportion
to this increase. This increase in produce and rent in consequence
of, and proportionately to, the increased outlay of capital is just
the same as regards the quantity of produce and rent, as when
the cultivated area of the rent-bearing plots of land of the same
quality had been increased and taken under cultivation with
the same outlay of capital as that previously invested in the
same types of soils. In the case of Table II, for instance, the
result would remain the same, if the additional capital of £2 V*
per acre were invested in an additional acre of B, C and D.

Furthermore, this assumption does not imply a more productive
investment of capital, but only an outlay of more capital upon
the same area with the same success as before.'

All relative proportions remain the same here. Of course, if
we do not consider the proportional differences, but consider the
purely arithmetic ones, then the differential rent may change
upon the various soils. Let us assume, for instance, that addition¬
al capital has been invested only in B and D. The difference
between D and A is then = 7 qrs whereas previously it was = 3;
the difference between B and A = 3 qrs, whereas previously it
was = l; that between G and B = — 1, whereas previously it was=

DIFFERENTIAL RENT II —FIRST CASE

687

= +i, etc. But this arithmetic difference, which is decisive in
differential rent I in so far as it expresses the difference in pro¬
ductivity with equal outlays of capital, is here quite immaterial,
because it is merely a consequence of different additional invest¬
ments of capital, or of no additional investment, while the
difference for each equal portion of capital upon the various
plots of land remains unchanged.

III. The additional capitals yield surplus-produce and thus
form surplus-profit, but at a decreasing rate, not in proportion
to their increase.

TABLE III

In the case of this third assumption, it is again immaterial
whether the additional second investments of capital are uni¬
formly distributed among the various soils or not; whether the
decreasing production of surplus-profit takes place proportion¬
ately or not; whether the additional investments of capital are
all in the same rent-bearing type of soil, or whether they are
distributed equally or unequally among rent-bearing plots of
land of varying quality. All these circumstances are immaterial
for the law that is to be developed. The only assumption is that
additional investments of capital yield surplus-profit upon any
one of the rent-bearing soils, but in decreasing proportion to
the amount of the increase in capital. The limits of this decrease,
in the table before us, are between 4 quarters=£12, the output
from the first outlay of capital on the best soil D, and 1 quarter =
=£3, the output from the same outlay of capital in the worst soil
A. The output from the best soil in case of the investment of
capital I constitutes the top limit, and the output from the same
outlay of capital in the worst soil A, which yields neither rent

688 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

nor surplus-profit, is the bottom limit of output, which successive
investments of capital yield upon any of the soil types producing
surplus-profit with decreasing productivity of successive invest¬
ments of capital. Just as assumption II corresponds to the case
in which new plots of the same quality are added from the better
soils to the cultivated area, in which the quantity of any one of
the cultivated soils is increased, so assumption III corresponds
to the case in which additional plots are cultivated whose various
degrees of fertility are distributed among soils ranging from D to
A, i.e., from the best to the worst soils. If the successive outlays
of capital are made exclusively in soil D, they may include the
existing differences between D and A, then differences between
D and C, and likewise between D and B. If they are all made
in soil C, then only differences between C and A, and C and B;
if exclusively in B, then only differences between B and A.

But this is the law: The rent increases absolutely upon all these
soils, even if not in proportion to the additional capital invested.

The rate of surplus-profit, considering both the additional capi¬
tal and the total capital invested in the soil, decreases; but the
absolute magnitude of the surplus-profit increases; just as the
decreasing rate of profit on capital in general is, in the main,
accompanied by an increase in the absolute amount of profit.
Thus the average surplus-profit of a capital invested in B = 90%
on the capital, whereas it was=120% for the first outlay of
capital. But the total surplus-profit increases from 1 qr to l'/t qrs,
or from £3 to £4V2. The total rent — considered by itself rather
than in relation to the doubled magnitude of the advanced capi¬
tal— has risen absolutely. The differences in rents from various
soils and their relative proportions may vary here; but this
variation in differences is a consequence, not cause, of the increase
in rents in relation to one another.

IV. The case in which additional investments of capital in the
better soils yield more produce than the original ones requires
no further analysis. It goes without saying that under this assump¬
tion the rent per acre will increase, and proportionately more
than the additional capital, no matter in which kind of soil the
outlay has been made. In this case, the additional investment
of capital is accompanied by improvements. This includes the
cases in which an additional outlay of less capital produces the
same or a greater effect than an additional outlay of more capital
did formerly. This case is not quite identical with the former
one, and the distinction is important in all investments of capital.
For instance, if 100 yields a profit of 10, and 200 employed iD

DIFFERENTIAL RENT II. — FIRST CASE

689

a certain form yields a profit of 40, then the profit has risen
from 10% to 20%, and to that extent it is the same as though
50 employed in a more effective form yields a profit of 10 instead
of 5. We assume here that the profit is associated with a pro¬
portional increase in output. But the difference is that I must
double the capital in the one case, whereas in the other, the
effect 1 produce is doubled with the capital employed hitherto.
It is by no means the same whether I produce: 1) the same output
as before with half as much living and materialised labour, or
2) twice the output as before with the same labour, or 3) four
times the former output with twice the labour. In the first case,
labour — in a living or materialised form — is released, and may
be employed otherwise; the power to dispose of capital and
labour increases. The release of capital (and labour) is in itself
an augmentation of wealth; it has exactly the same effect as
though this additional capital has been obtained by accumula¬
tion, but it saves the labour of accumulation.

Assume that a capital of 100 has produced an output of ten
metres. The 100 includes constant capital, living labour and
profit. Thus a metre costs 10. Now, if I can produce 20 metres
with the same capital of 100, then a metre costs 5. If, on the other
hand, I can produce 10 metres with a capital of 50, then a metre
likewise costs 5, and should the former supply of commodities
suffice a capital of 50 is released. If I have to invest a capital
of 200 in order to produce 40 metres, then a metre also costs 5.
The determination of value, and also the price, does not permit
any difference to be discerned here; no more than the amount
of output proportional to the outlay of capital. But in the first
case, additional capital is saved* to be used perhaps to double
production if necessary; in the second case, capital is released,**
in the third case, the increased output can only be obtained by
augmenting the invested capital, although not in the same pro¬
portion as when the increased output was to have been supplied
by the old productive power. (This belongs in Part I.)

From the viewpoint of capitalist production, the employment
of constant capital is always cheaper than that of variable capital,
not as regards increasing the surplus-value, but rather as re¬
gards reducing the cost-price — and saving of costs even in the
element creating surplus-value, in labour, performs this service
for the capitalist and makes profit for him so long as the regulat-

* In the German 1894 edition this reads: capital is released.— Ed.

** Ibid.: additional capital is saved. — Ed.

fi90 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

ing price of production remains the same. This presupposes, in
fact, the development of credit and an abundance of loan capital
corresponding to the capitalist mode of production. On the one
hand, I employ £100 additional constant capital, if £100 is the
output of five labourers during the year; on the other hand,
£100 in variable capital. If the rate of surplus-value = 100%,
then the value created by the five labourers = £200; on the other
hand, the value of £100 constant capital=£100 and as capital
it is perhaps = £105, if the interest rate=5%. The same sums
of money express very different values, from the viewpoint of
the output they produce, depending on whether they are advanced
to production as magnitudes of value of constant ot of variable
capital. Furthermore, as regards the cost of the commodities
from the viewpoint of the capitalist, there is also this difference,
that of the £100 constant capital only the wear and tear enters
into the value of the commodity in so far as this money is invested
in fixed capital, whereas the £100 invested in wages must be
completely reproduced in the commodity.

In the case of colonists, and independent small producers in
general, who have no access to capital at all or only at high
interest rates, that part of the output which represents wages is
their revenue, whereas for the capitalist it constitutes an advance
of capital. The former, therefore, regards this expenditure of
labour as the indispensable prerequisite for the labour-product,
which is the thing that interests him above all. But, as regards
his surplus-labour, after deducting the necessary labour, it is
evidently realised in the surplus-product; and as soon as he can
sell the latter, or use it for himself, he looks upon it as something
that cost him nothing, because it cost him rio materialised labour.
It is only the expenditure of the latter which appears to him as
alienation of wealth. Of course, he tries to sell as high as possible;
but even a sale below value and below the capitalist price of
production still appears to him as .profit, unless this profit is
anticipated by debts, mortgages, etc. For the capitalist, on the
other hand, the investment of both variable and constant capital
represents an advance of capital. The relatively larger advance
of the latter reduces the cost-price, and in fact the value of the
commodities, everything else being equal. Hence, although
profit arises only from surplus-labour, consequently only from
the employment of variable capital, it may still seem to the
individual capitalist that living labour is the most expensive
element in his price of production which should be reduced to
a minimum before all else. This is but a capitalistically distorted

DIFFERENTIAL RENT II. — FIRST CASE

691

form of the fact that the relatively greater use of congealed
labour, as compared with living labour, signifies an increase in
the productivity of social labour and a greater social wealth.
From the viewpoint of competition, everything appears thus
distorted and turned topsy-turvy.

Assuming prices of production to remain unchanged, the addi¬
tional investments of capital in the better soils, that is, in all
soils from B upward may be made with unaltered, increasing,
or decreasing productivity. For soil A this would only be possible
under the conditions assumed by us, if productivity remains the
same — whereby the land continues to yield no rent — and also
if productivity increases; a portion of the capital invested in
A would then yield rent, while the remainder would not. But
it would be impossible if productivity on A were to decrease,
for then the price of production would not remain unchanged,
but would rise. Yet in all these cases, i.e., whether the surplus-
product yielded by the additional investments is proportional to
the latter or is greater or smaller than this proportion — whether,
therefore, the rate of surplus-profit on the capital remains con¬
stant, rises or falls when this capital increases, the surplus-
product and the corresponding surplus-profit per acre increases,
and hence also the potential rent in grain and money. The growth
in the mere quantity of surplus-profit or rent, calculated per
acre, that is, an increasing quantity calculated on the basis of
some constant unit — in the present case on a definite quantity
of land such as an acre or a hectare — expresses itself as an in¬
creasing ratio. Hence the magnitude of the rent, calculated per
acre, increases under such circumstances simply in consequence
of the increase in the capital invested in the land. This takes
place, to be sure, assuming the prices of production remain the
same, and, on the other hand, regardless of whether the productiv¬
ity of the additional capital remains unaltered, or whether it
decreases or increases. The latter circumstances modify the range
in which the magnitude of rent per acre increases but not the
existence of this increase itself. This is a phenomenon peculiar
to differential rent II, and distinguishing it from differential
rent I. If the additional investments of capital were made suc¬
cessively in space, side by side in new additional soil of cor¬
responding quality, rather than successively in time in the same
soil, the quantity of the rental would have increased, and, as
previously shown, so would the average rent from the total cul¬
tivated area, but not the magnitude of the rent per acre. Given
the same result so far as quantity and value of total production

692 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

and surplus-product are concerned, the concentration of capital
upon a smaller area of land increases the amount of rent per acre,
whereas under the same conditions, its dispersion over a larger
area, all other conditions being equal, does not produce this
effect. But the more the capitalist mode of production develops,
the more does the concentration of capital upon the same area
of land develop, and, therefore, the more does the rent, calculat¬
ed per acre, increase. Consequently, given two countries in
which the prices of production are identical, the differences in
soil type are identical, and the same amount of capital is in¬
vested — but in the one country more in the form of successive
outlays upon a limited area of land, whereas in the other more in
the form of co-ordinated outlays upon a larger area — then the
rent per acre, and thereby the price of land, would be higher in
the first country and lower in the second, although the total rent
would be the same for both countries. The difference in magni¬
tude of rent could thus not be explained here to be a result of
a difference in the natural fertility of the various soils, nor a
result of a difference in the quantity of employed labour, but
solely a result of different ways in which the capital is invested.

When we refer to surplus-product here, this should always be
understood to mean that aliquot part of the output which repre¬
sents surplus-profit. Ordinarily, we mean by excess product or
surplus-product that portion of the output which represents the
total surplus-value, or in some cases that portion which represents
the average profit. The specific meaning which this term assumes
in the case of rent-bearing capital gives rise to misunderstanding,
as previously pointed out.

CHAPTER XLII

DIFFERENTIAL RENT II.-SECOND CASE:
FALLING PRICE OF PRODUCTION

The price of production may fall when additional investments
of capital take place with an unaltered, falling, or rising rate of
productivity.

I. Productivity of the additional investment of capital remains
the same.

In this case, the assumption, therefore, is that the output in¬
creases proportionally to the capital invested in the various soils
and in accordance with their respective qualities. This means for
constant differences in soils that the surplus-product increases in
proportion to the increased investment of capital. This case,
then, excludes any additional investment of capital in soil A
which might affect the differential rent. For this soil, the rate of
surplus-profit=0; thus, it remains=0 since we have assumed
that the productiveness of the additional capital, and therefore
the rate of surplus-profit, remain the same.

But under these conditions the regulating price of production
can only fall, because it is the price of production of the next
best soil, of B, or any better soil than A, rather than that of
A, which becomes the regulator; so that the capital is withdrawn
from A, or perhaps from A and B if the price of production of C
should become the regulating one, and thus all soils inferior to
G would be eliminated from the competition among grain-
producing soils. The prerequisite for this is, under the assumed
conditions, that the additional yield from the additional invest¬
ments of capital satisfy the demand, so that the output from
the inferior soil A, etc., become superfluous for the re-establish¬
ment of a full supply.

23—2494

694 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Thus, let us take, for instance, Table II, but in such a way
that 18 qrs instead of 20 satisfy the demand. Soil A would drop
out; B* and its price of production of 30 shillings per quarter
would become regulating. The differential rent then assumes the
following form:

TABLE IV

Type -of

Soli

Acres

Capital £

o o

b U

Os Oe

Output Qrs

Selling Price
per qr £

Proceeds £

Rent

lli

v. U

O Os

ears

in Money

IV.

I1/,

IV,

Total

■

Compared with Table II, the ground-rent would hence have
fallen from £36 to £9, and in grain from 12 qrs to 6 qrs; total
output would have fallen only by 2 qrs, from 20 to 18. The rate
of surplus-profit calculated on the capital would have fallen to
one-third, i.e., from 180% to 60%.** Thus, the fall in the price
of production is accompanied here by a decrease of the rent in
grain and money.

Compared with Table I, there is merely a decrease in money-
rent; the rent in grain is in both cases 6 qrs; but in the one case
it=£18, and in the other £9. For soil C,*** the rent in grain,
compared with Table I, has remained the same. In fact, it is
owing to the additional production resulting from the uniformly
acting additional capital that the yield from A has been ex¬
cluded from the market, and thereby soil A has been eliminated
as a competing producing agent, and it is owing to this fact that
a new differential rent I has been formed in which the better
soil B plays the same role as did formerly the inferior soil A.

* In the German 1894 edition this reads: D. — Ed.

•* Ibid.: one-half, from 180% to 90%. — Ed.

Ibid.: for soil C and D. — Ed.

DIFFERENTIAL RENT II —SECOND CASE

695

Consequently, on the one hand, the rent from B has disappeared;
on the other hand, nothing has been altered in the differences
between B, C and D by the investment of additional capital —
in accordance with our assumption. For this reason, that part of
the output which is transformed into rent is reduced.

If the above result— the satisfaction of the demand with A
excluded — had been accomplished, perchance, by the invest¬
ment of more than double the capital in C or D, or in both, then
the matter would assume a different aspect. For example, if the
third investment of capital were made in C:

TABLE IV a

Type of Soil

Capilal £

Profit £

Price of Pro¬
duction £

Output Qrs

Selling Price
£

caa

Rent

Rate of Sur-
pl us-Proht

in Oraln
Qrs

in Money
£

7 V,

l1/.

41/,

60%

120%

Total

171/a

31/*

31 V*

10*/.

In this case, compared with Table IV, the output from C has
risen from 6 to 9 qrs, the surplus-product from 2 to 3 qrs, and
the money-rent from £3 to £41/». Compared with Table II,*
where the latter was £12, and Table I, where it was £6, the
money-rent has, on the other hand, decreased. The total rental
in grain— 7 qrs and has fallen compared with Table II (12 qrs)
and risen compared with Table I (6 qrs); in money ^lO1/,) it
has fallen compared with both (£18 and £36).

If the third investment of capital of £2 */, had been employed
on soil B, it would indeed have altered the quantity of produc¬
tion, but would not have affected the rent, since, according to
our assumption, the successive investments do not produce any
differences upon the same soil and soil B does not yield any rent.

If we assume, on the other hand, that the third investment
of capital takes place upon D instead of C, we have the following:

* Ibid.: I .—Ed.

696 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

TABLE IVb

Type of Soil

Acres

Capital £

Price of Pro¬
duction £

Output Qrs

Selling Price
£

Proceeds E

Rent

Rate of Sur¬
plus- Proht

in Grain
Qrs

in Money
£

1‘/,

l1/*

00%

l1/*

l1/.

120%

Total

171/ 2

31/.

■

Here the total product is 22 qrs, more than double that of
Table I, although the invested capital is only £17V2 as against
£10, that is, not twice the amount. The total product is also
larger by 2 qrs than that of Table II, although the invested
capital in the latter is larger — namely, £20.

Compared with Table I, the rent in grain from soil D has in¬
creased from 3* to 6 qrs, whereas the money-rent, £9, has remained
the same. Compared with Table II, the grain-rent from D is
the same, namely, 6 qrs, but the money-rent has fallen from
£18 to £9.

Comparing the total rents, the grain-rent from Table IVb =
=8 qrs is larger than that from Table 1=6 qrs and than that
from Table IVa=7qrs; but it is smaller than that from Table 11 =
= 12 qrs. The money-rent from Table IVb =£12 is larger than
that from Table IVa=£10I/2, and smaller than that from Table 1 =
=£18 and that from Table II =£36.

In order that the total rental may, under the conditions of
Table IVb (with the elimination of rent from B), be equal to that
of Table I, we need £6 more of surplus-product, that is, 4 qrs
at £1V2> which is the new price of production. We then have
a total rental of £18 again as in Table I. The magnitude of the
required additional capital will vary according to whether we
invest it in C or D, or divide it between the two.

On C, £5 capital yields 2 qrs of surplus-product; consequently,
£10 additional capital yields 4 qrs of additional surplus-product.

* In the German 1894 edition this reads: 2 .—Ed.

DIFFERENTIAL RENT II.— SECOND CASE

697

On D, £5 additional capital would suffice to produce 4 qrs of
additional grain-rent under the conditions assumed here, namely
that the productivity of the additional investments of capital
remains the same. We should then obtain the following results:

TABLE IV c

Acres

Capital E

cal

4-*

•0

Price of Pro¬
duction E

Output Qrs

Selling Price

■O

Rent

Rate of Sur¬
plus-Profit

1 V,

1*/.

60%

71/,

l1/.

I1/*

120%

Total

27*/*

5>/,

■

TABLE IV d.

Type of Soil

Acres

Capital £

’■M

■e

Price of Pro¬
duction E

Output Qrs

Selling Price

Proceeds E

Rate of Sur¬
plus-Profit

iv,

l1/.

60%

12V,

2V,

iv,

120%

Total

22 V,

4 V,

The total money rental would be exactly one-half of what it
was in Table II, where the additional capitals were invested at
constant prices of production.

The most important thing is to compare the above tables
with Table I.

We find that while the price of production has fallen by one-
half, i.e., from 60 shillings to 30 shillings per quarter, the total
money rental has remained the same, namely=£18, and the
grain-rent has correspondingly doubled from 6 to 12 qrs. Upon B

698 transformation of surplus-profit into ground-rent

the rent has disappeared; upon C the money-rent has risen by
one-half in IVc, but has fallen by one-half in IVd; upon D in
IVc, it has remained the same, =£9, and has risen from £9
to £15 in IVd. The production has risen from 10 to 34 qrs in
IVc, and to 30 qrs in IVd; the profit from £2 to £5*/,, in IVc
and to £4 1/a in IVd. The total investment of capital has risen in
the one case from £10 to £27V2, and in the other from £10 to
£22Va; i.e., in both cases it has more than doubled. The rate of
rent, that is, the rent calculated on the invested capital, is in
all tables from IV to IVd everywhere the same for each kind of
soil — which was already implied in the assumption that the
rate of productivity for the two successive investments of capital
remains the same for each soil type. But compared with Table I
this rate has fallen, both for the average of all kinds of soil and
for each one of them individually. In Table I it was=180%

on an average, whereas in IVc it=-^T7- X 100=656/n% and in

IVd it=-^n— X 100 = 80%. The average money-rent per acre has

risen. Formerly, in Table I, its average was £41/gper acre from all
four acres, whereas in IVc and IVd it is £6 per acre upon the three
acres. Its average upon the rent-bearing land was formerly £6,
whereas now it is £9 per acre. Hence the money-value of the rent
per acre has risen and now represents twice as much grain as
it did formerly; but the 12 qrs of grain-rent are now less than one-
half of the total output of 34 and 30* qrs respectively, whereas
in Table I the 6 qrs represent 3/B of the total output of 10 qrs.
Consequently, although the rent as an aliquot part of the total
output has fallen, and has also fallen when calculated on the
invested capital, its money-value calculated per acre has risen,
and still more its value as a product. If we take soil D
in Table IVd, we find that the price of production correspond¬
ing to the capital outlay here =£15, of which £12l/a is invested
capital. The money-rent = £15. In Table I, for the same soil D,
the price of production was =£3, the invested capital=£27a,
and the money-rent =£9; that is, the latter was three times
the price of production and almost four times the capital. In
Table IVd, the money-rent for D, £15, is exactly equal to the
price of production and larger than the capital by only 1/6. Never¬
theless, the money-rent per acre is 2/s larger, namely, £15
instead of £9. In Table I, the grain-rent of 3 qrs = */4 of the total

* In the German 1894 edition this reads: 33 and 27. — Ed.

DIFFERENTIAL RENT II.— SECOND CASE

699

product of 4 qrs; in Table IVd it is 10 qrs, or one-half the total
product (20 qrs) per acre of D. This shows that the money-value
and grain value of the rent per acre may rise, although it consti¬
tutes a smaller aliquot part of the total yield and has fallen in
proportion to the invested capital.

The value of the total product in Table I = £.30; the rent =
=£18, or more than one-half of it. The value of the total product
in IVd=£45, of which the rent=£18, or less than one-half.

Now, the reason why in spite of the fall in price by £l1/s per
quarter, i.e., a fall of 50%, and in spite of the reduction in com¬
peting soil from 4 to 3 acres, the total money-rent remains the
same and the total grain-rent is doubled, while, calculated per
acre, both the grain-rent and money-rent rise, is that more quar¬
ters of surplus-product are produced. The price of grain falls by
50%, and the surplus-product increases by 100%. But in order
to obtain this result, the total production under the conditions
assumed by us must be trebled, and the investment of capital
in the superior soils must be more than doubled. At what rate
the latter must increase depends in the first place upon the dis¬
tribution of additional capital investments among the better
and best soils, always assuming that the productivity of the
capital invested in each soil type increases proportionately to its
magnitude.

If the fall in price of production were smaller, less additional
capital would be required to produce the same money-rent. If
the supply required to throw soil A out of cultivation — and this
depends not merely upon the output per acre of A, but also upon
the share held by A in the entire cultivated area — thus, if the
supply required for this purpose were larger, and thereby also
the amount of additional invested capital required in soils better
than A, then, other circumstances remaining the same, the money
and grain rents would have increased still more, although soil
B would have ceased yielding money and grain rents.

If the capital eliminated from A had been =£5, the tables to
be compared for this case would be tables II and IVd. The total
product would have increased from 20 to 30 qrs. The money-
rent would be only half as large, or £48 instead of £36; the grain-
rent would be the same, namely = 12 qrs.

If a total product of 44 qrs = £66 could be produced upon D
with a capital =£271/,— corresponding to the old rate for D,
4 qrs per £21/1 capital — then the total rental would once more
reach the level attained in Table II, and the table would appear
as follows:

700 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Type of Soil

Capital

Output

Qrs

Grain-Rent

Qrs

Money-Rent

27 V*

Total

37V,

The total production would be 54 qrs as against 20 qrs in
Table II, and the money-rent would be the same, =£36. But the
total capital would be £37 V„ whereas in Table II it was=20.
The total invested capital would be double almost, while produc¬
tion would be nearly treble; the grain-rent would be double and
the money-rent would remain the same. Hence, if the price falls —
while productivity remains the same — as a result of the invest¬
ment of additional money-capital in the better soils which yield
rent, that is, all soils better than A, then the total capital has a
tendency not to increase at the same rat* as production and grain-
rent; thus the increase in grain-rent may compensate for the loss
in money-rent due to the falling price. The same law also mani¬
fests itself in that the invested capital must be proportionately
larger as more is invested in C than D, i.e., in soils yielding
less rent rather than in soils yielding more rent. The point is
simply this: in order that the money-rent may remain the same
or rise, a definite additional quantity of surplus-product must
be produced, and the greater the fertility of the soils yielding
surplus-product, the less capital this requires. If the difference
between B and C, and C and D, were still greater, still less addi¬
tional capital would be required. The specific proportion is deter¬
mined by 1) the ratio of fall in price, in other words, by the
difference between soil B, which does not yield rent now, and
soil A, which formerly was the soil not yielding rent; 2) the ratio
of the differences between the soils better than B upwards; 3) the
amount of newly invested additional capital, and 4) its distribu¬
tion among the soils of varying quality.

In fact, we see that this law merely expresses what was already
ascertained in the first case: When the price of production is
given, no matter what its magnitude, the rent may increase as
a result of additional capital investment. For owing to the elim¬
ination of A, we now have a new differential rent I with B

DIFFERENTIAL RENT II.— SECOND CASE

701

as the worst soil and £1*/* per quarter as the new price of pro¬
duction. This applies to Table IV as well as to Table II. It is
the same law, except that our point of departure is soil B instead
of A, and our price of production is taken as £1V2 instead of £3.

The important thing here is this: To the extent that so much
and so much additional capital was necessary in order to with¬
draw the capital from soil A and create the supply without it,
we find that this may be accompanied by an unaltered, rising,
or falling rent per acre, if not from all plots of land then at least
from some, and so far as the average of the cultivated plots is
concerned. We have seen that grain-rent and money-rent do not
maintain a uniform relation to one another. It is merely due to
tradition that grain-rent is still of any importance in economics.
One might demonstrate equally well that, e.g., a manufacturer
can buy much more of his yarn with his profit of £5 than he
could formerly with a profit of £10. It shows at any rate, that
messieurs landlords, when they are simultaneously owners or
shareholders in manufacturing establishments, sugar-refineries,
distilleries, etc., may in their capacity as producers of their
own raw materials still make a considerable profit when the
money-rent is falling.34

II. Decreasing rate of productivity of the additional capital.

This introduces nothing new into the problem, in so far as the
price of production may also fall in this case, as in the case just
considered, only when additional investments of capital in better
soils than A render the output from A superfluous and the capital
is therefore withdrawn from A, or A is employed for the produc¬
tion of other products. This case has been exhaustively discussed
above. It was shown that the rent in grain and money per acre
may increase, decrease, or remain unchanged.

14 The above tables IVa to IVd had to be recalculated due to an error in
computation which ran through all of them. While this did not affect the the¬
oretical conclusions drawn from these tables, it introduced, in part, quite
monstrous numerical values for production per acre. Even these are not
objectionable in principle. For all relief ana topographical maps it is cus¬
tomary to choose a much larger scale for the vertical than for the horizontal.
Nevertheless, should anyone feel that his agrarian feelings have been injured
thereby, he is at liberty to multiply the number of acres by any numerical
value that will satisfy him. One might also choose 10, 12, 14, 16 bushels
(8 bushels = 1 quarter) per acre in Table 1 instead of 1, 2, 3, 4 quarters, and
the derived numerical values in the other tables would remain within the
limits of probability; it will be found that the result, i.e., the ratio of rent
increase to capital increase, is exactly the same. This has been done in the
tables included by the editor in the next chapter. — F. E.

702 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

For convenience in making comparisons we reproduce the
following table:

TABLE IV

Type of
Soil

Acres

Profit

Price of
Produc¬
tion per
Qr

Out¬

put

Qrs

Grain-

Rent

Qrs

Money-

Rent

Qra

Rate of Sur¬
plus-Profit

2V«

2V,

iv,

120%

21/.

240%

2V* **

V 4

360%

Total

180%

average

Now let us assume that a quantity of 16 qrs supplied by B, C,
and D at a decreasing rate of productivity suffices to exclude A
from cultivation. In such case, Table III is transformed into
the following:

TABLE V

Type of Soil

Acres

Invest¬
ment
of Capital

Profit £

Output Qrs

Selling Price

Proceeds £

Grain-Rent

Qrs

Money-Rent

Rate of Sur¬
plus- Profit

2V.+2V,

2+lV,=3Vs

Is/,

2V,+2V«

3+2 =5

Is/,

87,

l1/.

2V.+2V.

4+3i/s=7Vt

Is/,

12V,

Total

3*** ****

■

27V,

94V, V*

average

* In the German 1894 edition this reads: 51*/,. — Ed.

** Ibid.: 137l/j. — Ed.

Ibid.: 4. — Ed.

**** Here, as well as in tables VI, VII, VIII, IX and X the land which
yields no rent is left out of consideration. — Ed.

DIFFERENTIAL RENT II.— SECOND CASE

703

Here, at a decreasing rate of productivity of the additional
capital, and a varying decrease for the various soil types, the
regulating price of production has fallen from £3 to £1 6/7. The
investment of capital has risen by one-half — from £10 to £15.
The money-rent has fallen by almost one-half— from £18 to
£93/7, but the grain-rent has fallen by only Viz — from 6 qrs to
51/* qrs. The total output has risen from 10 to 16, or by 60%.
The grain-rent constitutes a little more than one-third of the
total product. The advanced capital is to the money-rent as
15 : 9 s/7, whereas formerly this ratio was 10 : 18.

III. Rising rate of productivity of the additional capital.

This differs from Variant I at the beginning of this chapter,
•where the price of production falls while the rate of productivity
remains the same, merely in that when a given amount of addi¬
tional produce is required to exclude soil A this occurs here more
quickly.

The effect may vary in accordance with the distribution of
investments among the various soils for a falling, as well as an
increasing, productivity of the additional capital investments.
In so far as this varying effect balances out the differences, or
accentuates them, the differential rent of the better soils, and
thereby the total rental too, will fall or rise, as was already the
case in differential rent I. In other respects, everything depends
upon the magnitude of the land area and capital excluded togeth¬
er with A, and upon the relative magnitude of advanced capital
required with a rising productivity in order to produce the addi¬
tional output to meet the demand.

The only point worth-while analysing here, and which really
takes us back to the investigation of the way in which this
differential profit is transformed into differential rent, is the
following:

In the first case, where the price of production remains the
same the additional capital which may be invested in soil A does
not affect the differential rent as such, since soil A, as before,
does not yield any rent, the price of its produce remains the same,
and it continues to regulate the market.

In the second case, Variant I, where the price of production
falls while the rate of productivity remains the same, soil A
will necessarily be excluded, and still more so in Variant II
(falling price of production with falling rate of productivity),
since otherwise the additional capital invested in soil A would
have had to raise the price of production. But here, in Variant III

704 transformation of surplus-profit into ground-rent

of the second case, where the price of production falls because
the productivity of the additional capital rises, this additional
capital may under certain circumstances be invested in soil A
as well as in the better soils.

Let us assume that when invested in soil A an additional capital
of £2 ‘/jj produces l'/s qrs instead of 1 qr.

TABLE VI

%—

Capital £

Profit £

Price of Pro¬
duction £

Output Qrs

Selling Price

■e

Rent

W j=

_ o

2 «

cc p.

21/14-21/a=5

l+Il/s=21/s

28/n

2'/j+'21/2=5

2+2V5=4!/s

2*/n

21./*

120%

21/1+21/I=5

3+ 33/5= 63/s

2s In

4Vs

240%

21/2+2l/a=5

4+4Vs=8Vs

2s In

6s/s

360%

■

13V 5

Aside from being compared with the basic Table I, this table
should be compared with Table II, where a two-fold investment
of capital is associated with a constant productivity, proportional
to the investment of capital.

In accordance with our assumption, the regulating price of
production falls. If it were to remain constant, =£3, then the
worst soil A, which used to yield no rent with an investment of
only £2 l/2, would now yield rent without worse soil being brought
under cultivation. This would have occurred due to an increase
in the productivity of this soil, but only for a part of the capital,
not for the original capital invested. The first £3 of production
price yield 1 qr; the second yield lJ/5 qrs; but the entire output
of 2'/s qrs is now sold at its average price. Since the rate of pro¬
ductivity increases with the additional investment of capital,
this presupposes an improvement. The latter may consist of
a general increase in capital invested per acre (more fertiliser,
more mechanised labour, etc.), or it may be that only through
this additional capital it is at all possible to bring about a quali¬
tatively different more productive investment of the capital. In
both cases, the investment of £5 of capital per acre yields an

DIFFERENTIAL RENT II.— SECOND CASE

705

output of 21/6 qrs, whereas the investment of one-half of this
capital, i.e., £2 */„ yields only 1 qr of produce. The produce
from soil A could, regardless of transient market conditions,
only continue to be sold at a higher price of production instead
of at the new average price, as long as a considerable area of
type A soil continued to be cultivated with a capital of only
£,21/i£ per acre. But as soon as the new relation of £5 of capital
per acre, and thereby the improved management, becomes uni¬
versal, the regulating price of production would have to fall to
£2 8/u. The difference between the two portions of capital would
disappear, and then, in fact, the cultivation of an acre of soil A
with a capital of only £2 1/8 would be abnormal, i.e., would not
correspond to the new conditions of production. It would then no
longer be a difference between the yields from different portions
of capital invested in the same acre, but between a sufficient and
an insufffcient total investment of capital per acre. This shows,
first of all, that insufficient capital in the hands of a large num¬
ber of tenant farmers (it must be a large number, for a small
number would simply be compelled to sell below their price of
production) produces the same effect as a differentiation of the
soils themselves in a descending line. The inferior cultivation
of inferior soil increases the rent from superior soils; it may even
lead to rent being yielded from better cultivated soil of equally
poor quality, which would otherwise not be yielded. It shows,
secondly, that differential rent, in so far as it arises from succes¬
sive investments of capital in the same total area, resolves itself
in reality into an average, in which the effects of the various
investments of capital are no longer recognisable and distin¬
guishable, and therefore do not result in rent being yielded
from the worst soil, but rather: 1) make the average price of
the total yield for, say, an acre of A, the new regulating price
and 2) appear as alteration in the total quantity of capital per
acre required under the new conditions for the adequate cultiva¬
tion of the soil; and in which the individual successive invest¬
ments of capital, as well as their respective effects, will appear
indistinguishably blended together. It is exactly the same with
the individual differential rents from the superior soils. In each
case, they are determined by the difference between the average
output from the soil in question and the output from the worst
soil at the increased capital investment — which has now become
normal.

No soil yields any produce without an investment of capital.
This is the case even for simple differential rent, differential

706 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

rent I; when it is said that one acre of soil A, which regulates
the price of production, yields so much and so much produce at
such and such a price, and that superior soils B, C and D yield
so much differential produce, and therefore so much and so much
money-rent at the regulating price of production, it is always
assumed that a definite amount ef capital is invested which,
under the prevailing conditions of production, is considered
normal. In the same way, a certain minimum capital is required
for every individual branch of industry in order that the com¬
modities may be produced at their price of production.

If this minimum is altered as a result of successive investments
of capital associated with improvements on the same soil, it occurs
gradually. So long as a certain number of acres, say, of A, do not
receive this additional working capital, a rent is produced upon
the better cultivated acres of A due to the unaltered price of pro¬
duction, and the rent from all superior soils, B, C and D, is in¬
creased . But as soon as the new method of cultivation has become
general enough to be the normal one, the price of production
falls; the rent from the superior plots declines again, and that
portion of soil A that does not possess the working capital,
which has now become the average, must sell its produce below
its individual price of production, i.e., below the average profit.

In the case of a falling price of production, this also occurs
even with decreasing productivity of the additional capital —
as soon as the required total product is supplied, in consequence
of increased investment of capital, by the superior soils, and
thus, e.g., the working capital is withdrawn from A, i.e., A no
longer competes in the production of this particular product,
e.g., wheat. The quantity of capital which is now required, on
an average, to be invested in the better soil B, the new regulator,
now becomes normal: and when one speaks of the varying fertil¬
ity of plots of land, it is assumed that this new normal quantity
of capital per acre is employed.

On the other hand, it is evident that this average investment of
capital, say, in England, of £8 per acre prior to 1848, and £12
subsequent to that year, will constitute the standard in conclud¬
ing leases. For the farmer expending more than this, the surplus-
profit is not transformed into rent for the duration of the contract.
Whether this takes place after expiration of the contract or not
will depend upon the competition among the farmers who are
in a position to make the same extra capital advance. We are not
referring here to such permanent soil improvements that con¬
tinue to provide the increased output with the same or even with

DIFFERENTIAL RENT II.— SECOND CASE

707

a decreasing outlay of capital. Such improvements, although
products of capital, have the same effect as natural differences
in the quality of the land.

We see, then, that a factor comes into consideration in the
case of differential rent II which does not appear in the case of
differential rent I as such, since the latter can continue to exist
independently of any change in the normal investment of capital
per acre. It is, on the one hand, the blurring of results from various
investments, of capital in regulating soil A, whose output now
simply appears as a normal average output per acre. It is, on the
other hand, the change in the normal minimum, or in the average
magnitude of invested capital per acre, so that this change ap¬
pears as a property of the soil. It is, finally, the difference
in. the manner of transforming surplus-profit into the form
of rent.

Table VI shows, furthermore, compared with tables I and II,
that the grain-rent has more than doubled in relation to I, and has
increased by l1/* qrs in relation to II; while the money-rent has
doubled in relation to I, but has not changed in relation to II. It
would have increased considerably if (other conditions remaining
the same) more of the additional capital had been allocated
to the superior soils, or if on the other hand the effect of the
additional capital on A had been less appreciable, and thus
the regulating average price per quarter from A had been
higher.

If the increase in productiveness by means of additional capital
should produce varying results for the various soils, this would
produce a change in their differential rents.

In any case, it has been shown that the rent per acre, for in¬
stance with a doubled investment of capital, may not only double,
but may more than double — while the price of production falls
in consequehce of an increased rate of productivity of the addi¬
tional capital invested, i.e., when this productivity grows at
a higher rate than the advanced capital. But it may also fall if
the price of production should fall much lower as a result of
a more rapid increase in productiveness of soil A.

Let us assume that the additional investments of capital, for
instance in B and C, do not increase the productivity at the same
rate as they do for A, so that the proportional differences decrease
for B and C and the increase in output does not make up for the
fall in price. Then, compared with Table II, the [money] rent
from D would remain unchanged, and that from B and C would
fall.

708 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

TABLE Via

Type of Soil

Acres

Capital £

Pruht £

Output per
Acre Qrs

Proceeds £

Grain-Rent

Qrs

Money-Rent

2V2+2V,=5

1+ 3 =4

i1/*

21/i+2,/,=5

2+2V,=4‘/j

iv.

6*/«

2‘/,+3*/i=5

3+ 5 =8

i1/.

2V2+2»/5=5

4+12 =16

i‘/i

Total

■

16V2

243/s

Finally, the money-rent would rise if more additional capital
were invested in the superior soils with the same proportional
increaso in productiveness than in A, or if the additional invest¬
ments of capital in the superior soils were effective at an increas¬
ing rate of productivity. In both cases the differences would
increase.

The money-rent falls when the improvement due to additional
investment of capital reduces the differences completely, or in
part, and affects A more than B and C. The smaller the increase
in productivity of the superior soils, the more it falls. It depends
upon the extent of inequality produced, whether the grain-rent
shall rise, fall or remain stationary.

The money-rent rises, and similarly the grain-rent, either
when — the proportional difference in additional fertility of the
various soils remaining unaltered — more capital is invested in
the rent-bearing soils than in rentless soil A, and more in soils
yielding higher rent than in those yielding lower rents; or when
the fertility — the additional capital remaining equal— increases
more on the better and best soils than on A, i.e., the money and
grain rents rise in proportion to this increase in fertility of the
better soils above that of the poorer ones.

But under all circumstances, there is a relative rise in rent
when increased productive power is the result of an addition of
capital, and not merely the result of increased fertility with unal¬
tered investment of capital. This is the absolute point of view,

DIFFERENTIAL RENT II —SECOND CASE

709

which shows that here, as in all former cases, the rent and in¬
creased rent per acre (as in the case of differential rent I on the
entire cultivated area — the magnitude of the average rental) are
the result of an increased investment of capital in land, no matter
whether this capital functions with a constant rate of productivity
at constant or decreasing prices* or with a decreasing rate of pro¬
ductivity at constant or falling prices, or with an increasing
rate of productivity at falling prices. For our assumption: con¬
stant prices with a constant, falling, or rising rate of productivity
of the additional capital, and falling prices with a constant,
falling, or rising rate of productivity, resolves itself into: a con¬
stant rate of productivity of the additional capital at constant
or falling prices, a falling rate of productivity at constant or
falling prices, and a rising rate of productivity at constant and
falling prices. Although the rent may remain stationary, or
may fall, in all these cases, it would fall more if the additional
investment of capital, other circumstances remaining the same,
were not a prerequisite for the increased productiveness. The
additional capital, then, is always the cause for the relatively
high rent, although absolutely it may have decreased.

CHAPTER X LIII

DIFFERENTIAL RENT II. -THIRD CASE:

RISING PRICE OF PRODUCTION

[A rising price of production presupposes that the productivity
of the poorest quality land yielding no rent decreases. The as¬
sumed regulating price of production cannot rise above £3 per
quarter unless the £2‘/2 invested in soil A produce less than 1 qr,
or the £5 — less than 2 qrs, or unless an even poorer soil than
A has to be taken under cultivation.

For constant, or even increasing, productivity of the second
investment of capital this would only be possible if the produc¬
tivity of the first investment of capital of £2*/2had decreased. This
case occurs often enough. For instance, when with superficial
ploughing the exhausted top soil yields ever smaller crops, under
the old method of cultivation, and then the subsoil, turned up
through deeper ploughing, produces better crops than before
with more rational cultivation. But, strictly speaking, this
special case does not apply here. The decrease in productivity
of the first £21/2 of invested capital signifies for the superior
soils, even when the conditions are assumed to be analogous
there, a decrease in differential rent I; yet here we are consider¬
ing only differential rent II. But since this special case cannot
occur without presupposing the existence of differential rent II,
and represents in fact the reaction of a modification of differential
rent I upon II, we shall give an illustration of it [see Table VII —
Ed.].

The money-rent and proceeds are the same as in Table II. The
increased regulating price of production makes good what has
been lost in quantity of produce; since this price and the quantity
of produce are inversely proportional, it is evident that their
mathematical product will remain the same.

DIFFERENTIAL RENT II —THIRD CASE 7 ] |

TABLE VII

Type of Soil

Acres

Invested

Capital

■x;

Price 0/ Pro¬
duction £

Output

Qrs

Selling Price

Proceeds £

Grain-Rent

Qrs

P M

Rate of Rent

2V*+2V,

1/,+ l‘/4 = 13/4

3 3/,

2V.+2V*

1 + 2‘/,=3V*

33/7

I3/-

■ POL A

2V.+ 2 1/,

I*/* -1 3’/4=5>/i

33/ »

3V.

21/,+ 2i /*

2 +5 =7

33/ 7

5V«

17V*

101/*

240%

In the above case, it was assumed that the productiveness of
the second investment of capital was greater than the original
productivity of the first investment. Nothing changes if we
assume the second investment to have only the same productiv¬
ity as the first, as shown in the following table:

table VIII

Type of Soil

Acres

Invested

Capital

Profit £

Price of

Prod. £

Output

Qrs

Selling Price
£

Proceeds £

in Grain

Qrs ?

Etti

Rate of Sur¬
plus-Profit

2‘/*+2V,=5

V.+1=1V*

2l/*+ 2l/2=5

1 +2=3

IV,

120%

2V*+2V,=5

lV,+3=4‘/*

240%

21/j+2,/*=5

2 +4=6

4 V*

360%

■

240%

Here, too, the price of production rising at the same rate com¬
pensates in full for the decrease in productivity in the case of
yield as well as money-rent.

The third case appears in its pure form only when the productiv¬
ity of the second investment of capital declines, while that of
the first remains constant — which was always assumed in the

712 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

first and second cases. Here differential rent I is not affected,
i.e., the change affects only that part which arises from differen¬
tial rent 1 1. We shall give two illustrations: in the first we assume
that the productivity of the second investment of capital has
been reduced to 1/2, in the second to */4.

TABLE IX

Type of Soil

Acres

Invested

Capital

Profit £

Price of

Prod. £

Output

Qrs

Selling Price

Proceeds £

Rent

Rate of Rent

in Grain
Qrs

in Money

2‘/t+2V*=5

1+ */*=i1/*

21/j+21/j=5

2+f =3

l1/.

120%

2l/t+ 2l/j=5

3+l»/*=4V*

240%

21/j+21/1=5

4+2 =6

41/,

360%

240%

Table IX is the same as Table VIII, except for the fact that
the decrease in productivity in VIII occurs for the first, and in
IX for the second investment of capital.

TABLE X

Type of Soil

Aores

Invested

Capital

Profit £

Price of

Prod, fi

Output

Qrs

Proceeds £

Rent

Rate of Rent

in Grain
Qrs

In Money

21/i+2*/j=5

l+V«=li/«

4*/s

2l/,+2Vs=5

2+i/,=2V,

44/s

iv«

120%

2,/t+2»/,=5

3+,/«=3*/t

4*/s

2*/i

240%

21/j+2‘/*=5

4+1 =5

4«/»

3»/«

360%

12 V.

71/,

240%

In this table, too, the total proceeds, the money-rent and rate
of rent remain the same as in tables II, VII and VIII, because
produce and selling price are again inversely proportional, while
the invested capital remains the same.

DIFFERENTIAL RENT II.— THIRD CASE

713

But how do matters stand in the other possible case when the
price of production rises, namely, in the case of a poor quality soil
not worth cultivating until then that is taken under cultivation?

Let us suppose that a soil of this sort, which we shall designate
by a, enters into competition. Then the hitherto rentless soil
A would yield rent, and the foregoing tables VII, VIII and X
would assume the following forms:

TABLE Vila

Type of Soil

Acres

Capital

Probt £

Price of

Prod. £

Output

Qrs

Proceeds £

Rent

I1/,

2»/. + 2 V,

V,+ Il/4=13/.

v„

2V.+21/.

1 +2‘/,=3V,

1+7

2l/«+2V,

t,/,+3,/4=5V.

33/4

1+2X7

21/*+21/1

5 */,

1+3X7

ll1/,

TABLE Villa

Type of Soil

Acres

Capital

Profit £

Price of

Prod. £

Output

Qrs

t$CM

Increase

l‘/4

44/s

2‘/,+21/,

V,+1=1V,

44/s

7‘/»

lVs

2V,+ 2V,

1 +2=3

4‘/a

142/ 5

1 + 4

8*/5

l1/s+?l/s

21/,+2 V,

liyf3=4»/.

44/s

213/s

3V«*

15V5

lVs+2X7Vs

2V2+2V2

2 +4=6

44/ 5

284/s

43/4

224/s

1V5+3X7Vs

16V«

■

10**

* In the German 1894 edition this reads: 2 1/4. — Ed.
** Ibid.: 9.— Ed.

714 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Capital a Output

E - o Qf*

1 6 !»/.

1 6 1+V«=1V«

1 8 2+»/,=2‘/,

1 6 3+*/«=3’/«

1 6 4+1 =5

*/»+6*/»

*/,+2X6V*

'/t+3X6*/3

By interpolating soil a there arises a new differential rent I;
upon this new basis, differential rent II likewise develops in an
altered form. Soil a has different fertility in each of the above
three tables; the sequence of proportionally increasing fertilities
begins only with soil A. The sequence of rising rents also behaves
similarly. The rent of the worst rent-bearing soil, previously
rentless, is a constant which is simply added to all higher rents.
Only after deducting this constant does the sequence of differ¬
ences clearly become evident for the higher rents, and similarly
its parallel in the fertility sequence of the different soils. In all
the tables, the fertilities from A to D are related as 1 : 2 : 3 : 4,
and correspondingly the rents:
in Vila, as 1 : (1+7) : (1+2x7) : (1+3x7),
in Villa, as l1/. : (1V.+7V.) : (l*/.+2 X7*/.) : (ll/.+3x7V.),
and in Xa, as («/,+ 6*/,) : (,/,+2x6*/,) : (l/,+3 X61/,)-
In brief, if the rent from A=n, and the rent from the soil of
next higher fertility =n+m, then the sequence is as follows:
n : (n + m) : (n+2m) : (n+3m), etc.— F. E. )

[Since the foregoing third case had not been elaborated in
the manuscript— only the title is there — it was the task of the
editor to fill in the gap, as above, to the best of his ability.
However, in addition, it still remains for him to draw the general
conclusions from the entire foregoing analysis of differential

DIFFERENTIAL RENT IL— THIRD CASE

715

rent II, consisting of three principal cases and nine subcases.
The illustrations presented in the manuscript, however, do not suit
this purpose very well. In the first place, they compare plots
of land whose yields for equal areas are related as 1 : 2 : 3 : 4;
i.e., differences, which exaggerate greatly from the very
first, and which lead to utterly monstrous numerical values
in the further development of the assumptions and calculations
made upon this basis. Secondly, they create a completely errone¬
ous impression. If for degrees of fertility related as 1 : 2 : 3 : 4,
etc., rents are obtained in the sequence 0 : 1 : 2 : 3, etc.,
one feels tempted to derive the second sequence from the first,
and to explain the doubling, tripling, etc., of rents by the dou¬
bling, tripling, etc., of the total yields. But this would be wholly
incorrect. The rents are related as 0 : 1 : 2 : 3 : 4 even when the
degrees of fertility are related as n : (n+1) : (n+2) : (n+3) :
(n+4). The rents are not related as the degrees of fertility, but
as the differences of fertility — beginning with the rentless soil
as the zero point.

The original tables had to be offered to illustrate the text.
But in order to obtain a perceptual basis for the following results
of the investigation, I present below a new series of tables in
which the yields are indicated in bushels (V 8 quarter, or 36.35
litres) and shillings (=marks).

The first of these. Table XI, corresponds to the former Table I.
It shows the yields and rents for soils of five different qualities,
A to E, with a first capital investment of 50 shillings, which
added to 10 shillings profit = 60 shillings total price of production
per acre. The yields in grain are made low: 10, 12, 14, 16, 18
bushels per acre. The resulting regulating price of production is
6 shillings per bushel.

The following 13 tables correspond to the three cases of differ¬
ential rent II treated in this and the two preceding chapters with
an additional invested capital of 50 shillings per acre in the same
soil with constant, falling and rising prices of production.
Each of these cases, in turn, is presented as it takes shape for:
1) constant, 2) falling, and 3) rising productivity of the second
investment of capital in relation to the first. This yields a
few other variants, which are especially useful for illustration
purposes.

For case I: Constant price of production — we have:

Variant 1: Productivity of the second investment of capital
remains the same (Table XII).

716 transformation of surplus-profit into ground-rent

„ 2: Productivity declines. This can take place only

when no second investment of capital is made in
soil A, i.e., in such a way that

a) soil B likewise yields no rent (Table XIII) or

b) soil B does not become completely rentless (Table
XIV).

Variant 3: Productivity increases (Table XV). This case like¬
wise excludes a second investment of capital in soil A.

For case II: Falling price of production— we have:

Variant 1: Productivity of the second investment of capital
remains the same (Table XVI).

„ 2: Productivity declines (Table XVII). These two

variants require that soil A be eliminated from
competition, and that soil B become rentless and
regulate the price of production.

„ 3: Productivity increases (Table XVIII). Here soil A

remains the regulator.

For case III: Rising price of production — two eventualities
are possible: soil A may remain rentless and continue to regu¬
late the price, or poorer soil than A enters into competition and
regulates the price, in which case A yields rent.

First eventuality: Soil A remains the regulator.

Variant 1: Productivity of the second investment remains the
same (Table XIX). This is admissible under the
conditions assumed by us, provided the productivity
of the first investment decreases.

„ 2: Productivity of the second investment decreases

(Table XX). This does not exclude the possibility
that the first investment may retain the same pro¬
ductivity.

„ 3: Productivity of the second investment increases

(Table XXI*). This, again, presupposes falling pro¬
ductivity of the first investment.

Second eventuality: An inferior quality soil (designated as a)
enters into competition; soil A yields rent.

Variant 1: Productivity of the second investment remains the
same (Table XXII).

* In the German 1894 edition this reads: XIX. — Ed.

DIFFERENTIAL RENT II.— THIRD CASE

717

Variant 2: Productivity declines (Table XXIII).

” 3: Productivity increases (Table XXIV).

These three variants conform to the general conditions of the
problem and require no further comment.

The tables now follow:

TABLE XI

Type of
Soil

Price of
Produc¬
tion

Sh.

Output

Bushels

Selling

Price

Proceeds

Sh.

Rent

Sh.

Rent

Increase

■B

■9

108

120

10X12

For second capital invested in the same soil:

First Case: Price of production remains unaltered.

Variant 1: Productivity of the second investment of capital
remains the same.

TABLE XII

Type of
Soil

Price of
Production

Sh.

Output

Bushels

Selling

Price

Sh.

Proceeds

Sh.

Rent

Sh.

Rent

Increase

60 60=120

10+10=20

120

60+60=120

12+12=24

144

60+60=120

14+14=28

168

2X24

60+60=120

16+16=32

192

3X24

60+ 60=120

18+18=36

216

4X24

1 1 1

1 1

240

10X24

718 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Variant 2: Productivity of the second investment of capital
declines; no second investment in soil A.

1) Soil B ceases to yield rent.

TABLE XIII

Type

Soil

Price of
Production

Sh.

Output

Bushels

Selling

Price

Sh.

Proceeds

Sh.

Rent

Sh.

Rent

Increase

60+60=120

14+ 9l/3=23l/a

140

rff / Iff

60+60=120

■ BBBBUjBmMH

160

■9

60+60=120

18+12* =30

180

120

6X20

2) Soil B does not become completely rentless.

TABLE XIV

Type

Soil

Price of
Production
Sh.

Output

Bushels

Selling

Price

Sh.

Pro¬

ceeds

Sh.

Rent

Sh.

Rent

Increase

60+60=120

12+ 9 =21

60+60=120

14+101/j=241/,

6+21

60+60=120

16+12 =28

168

6+2x21

60+60=120

18+13VJ-311/*

189

6+3x21

150

4x6+6x21

* In the German 1894 edition this reads: 20.— Ed.

DIFFERENTIAL RENT II.— THIRD CASE

719

Variant 3: Productivity of the second investment of capital in¬
creases; here, too, no second investment in soil A.

TABLE XV

Type

Soil

Price of
Production

Sh.

Output

Bushels

Selling

Price

Sh.

Pro¬

ceeds

Sh.

Rent

Sh.

Rent

Increase

60+ 60=120

12+15 =27

162

60+60=120

14+17V,=31V,

189

42+27

60+ 60=120

16+20 =36

216

42+2x27

18+ 221/1=401/i

243

123

42+3x27

330

4x42+6x27

Second Case: Price of production declines.

Variant 1; Productivity of the second investment of capital
remains the same. Soil A is excluded from compe¬
tition and soil B becomes rentless.

TABLE XVI

Type

Soil

Price of
Production
Sh.

Output

Bushels

Selling

Price

Sh.

Proceeds

Sh.

Rent

Sh.

Rent

Increase

60+ 60=120

12+12=24

120

60+60=120

14+14=28

140

60+60=120

16+16=32

160

60+60=120

18+18=36

180

1 1 1

120

6x20

720 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Variant 2: Productivity of the second investment of capital
declines; soil A is excluded from competition and
soil B becomes rentless.

TABLE XVII

Type

Soil

Price of
Production
Sh.

Output

Bushels

Selling

Price

Sh.

Pro¬

ceeds

Sh.

Rent

Sli.

Rent

In¬

crease

60+60=120

12+9 =21

5V,

120

60+60=120

14+10,/.=241/j

5 »/,

140

60+60=120

16+12 =28

5‘/»

160

2x20

60+60=120

18+131/j=311/,

5*/,

180

3X20

120

6x20

Variant 3: Productivity of the second investment of capital in¬
creases; soil A remains in competition; soil B yields
rent.

TABLE XVIII

Type

Soil

Price of
Production
Sh.

Output

Bushels

Selling

Price

Sh.

Proceeds

Sh.

Rent

Sh.

Rent

Increase

60+60=120

10+15=25

44/s

120

60+ 60=120

12+18=30

44/s

144

60+60=120

14+21=35

44/s

168

2x24

60 + 60=120

16+24=40

44/ 5

192

3x24

60+60=120

18+27=45

44/s

216

4x24

240

10X24

Third Case: Price of production rises.

A) Soil A remains rentless and continues to regulate the price.
Variant 1: Productivity of the second investment of capital
remains the same: this requires decreasing productiv¬
ity of the first investment of capital.

DIFFERENTIAL RENT II.— THIRD CASE

721

TABLE XIX

Soli

Price of
Production
Sh.

Output

Bushels*

Selling

Price

Sb.

Pro¬

ceeds

Sh.

Rent

Sh.

Rent

Increase

60+60=120

7V,+10=17V,

6*/»

120

60+60=120

9 +12=21

6 V,

144

60+ 60=120

10‘/a+14=24‘/t

«*/t

168

60+60=120

12 +16=28

6 V,

192

60+ 60=120

131/1+18=311/,

6*/»

216

240

10x24

Variant 2: Productivity of the second investment of capital
decreases; which does not exclude constant productiv¬
ity of the first investment.

TABLE XX

Type

Soil

Price of
Production
Sh.

Output

Bushels

Selling

Price

Sh.

Proceeds

Sh.

Rent

Sh.

Rent

Increase

60+60=120

10+5=16

120

60+60=120

12+6=18

144

60+ 60=120

14+7=21

168

2X24

60+ 60=120

16+8=24

192

3X24

60+60=120

18+9=27

216

4X24

240

10x24

Variant 3: Productivity of the second investment of capital
rises; under the assumed conditions this presupposes
declining productivity of the first investment.

• In the German 1894 edition figures from Table XXI were erroneously
inserted under this head. They have been changed to suit the case. — Ed.

722 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

TABLE XXI

ToT

Soil

Price of
Production
Sh.

Output

Bushels

Selling

Price

Sh.

Pro¬

ceeds

Sh.

Rent

Sli.

Rent

Increase

60+60=120

5+12»/,=17»/.

120

60+60=120

6+15 =21

144

60+60=120

7+171/j=241/*

r m

168

2x24

60+60=120

8+20 =28

192

3x24

60+ 60=120

9+221/j=311/,

216

4X24

240

10x24

B) An inferior soil (designated as a) becomes the price regula¬
tor and soil A thus yields rent. This makes admissible for all
variants constant productivity of the second investment.
Variant 1: Productivity of the second investment of capital
remains the same.

TABLE XXII

Type

Soil

Price of
Production
Sh.

Output

Bushels

Selling

Price

Sh.

Proceeds

Sh.

Rent

Sh.

Rent

Increase

120

7‘/s

120

60+ 60=120

10+10=20

7V,

150

60+ 60=120

12+12=24

7 V.

180

2x30

60+60=120

14+14=28

71/ 1

210

3x30

60+60=120

16+16=32

7Vj

240

120

4x30

60+ 60=120

18+18=36

71/*

270

150

5x30

450

15x30

Variant 2: Productivity of the second investment of capital
declines.

DIFFERENTIAL RENT II — THIRD CASE

723

TABLE XXIII

Type

Soil

Price of
Production
Sh.

Output

Bushels

Selling

Price

Sb.

Pro*

cecds

Sh.

Rent

Sh.

Rent

Increase

120

60+60=120

10+7*/, =17*/,

140

60+ 60=120

12+ 9 =21

168

20+28

60+60=120

14+10*/, =24*/j

196

20+2x28

60+ 60=120

16+12 =28

224

104

20+3x28

60+60=120

18+13*/,=31‘/,

252

132

20+4x28

380

5x20+10x28

Variant 3: Productivity of the second investment increases.

TABLE XXIV

Type of

Soil

Price of
Produc¬
tion Sb.

Output

Bushels

Selling
Price Sh.

Proceeds

Sh.

Rent Sb.

Rent

Increase

120

60+ 60=120
G0+60=120
60+ 60=120
60+60=120
60+ 60=120

10+121/,=221/,
12+15 =27

14+17*/,=31Vt
16+20 =36

18+22‘/,=40»/,

7*/.

7V,

7‘/,

7 l/t
71/,
71/,

120

168’/,

202*/,

236*/,

270

303*/,

48s/,

82*/,

116*/,

150

183*/,

15+333/«
15+2X333/,
15+3x33*/,
15+4 x333/,
15+5x33*/,

581*/4

5x15+15x33*/,

These tables lead to the following conclusions:

In the first place, the sequence of rents behaves exactly as
the sequence of fertility differences — taking the rentless regulat¬
ing soil as the zero point. It is not the absolute yield, but only
the differences in yield which are the factors determining rent.
Whether the various soils yield 1, 2, 3, 4, 5 bushels, or whether
they yield 11, 12, 13, 14, 15 bushels per acre, the rents in both
cases form the sequence 0, 1, 2, 3, 4 bushels, or their equivalent
in money.

724 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

But far more important is the result with respect to the total
rent yields for repeated investment of capital in the same land.

In five out of the thirteen analysed cases, the total rent doubles
when the investment of capital is doubled; instead of 10X12
shillings it becomes 10x24 shillings=240 shillings. These cases
are:

Case I, constant price, variant 1: constant production rise
(Table XII).

Case II, falling price, variant 3: increasing production rise
(Table XVIII).

Case III, increasing price, first eventuality (where soil A remains
the regulator), in all tlrree variants (tables XIX, XX and XXI).

In four cases the rent more than doubles, namely:

Case I, variant 3, constant price, but increasing production
rise (Table XV), The total rent climbs to 330 shillings.

Case III, second eventuality (where soil A yields rent), in all
three variants (Table XXII, rent = 15 x 30 = 450 shillings; Table
XXIII, rent=5 x 20+10 x 28 = 380 shillings; Table XXIV, rent=
=5 X 15+15 x333/4 = 5811/4 shillings).

In one case the rent rises, but not to twice the amount yielded
by the first investment of capital:

Case I, constant price, variant 2: falling productivity of the
second investment, under conditions whereby B does not become
completely rentless (Table XIV, rent=4x6+6x21 = 150 shil¬
lings).

Finally, only in three cases does the total rent remain at the
same level with a second investment — for all soils taken to¬
gether — as with the first investment (Table XI); these are the
cases in which soil A is excluded from competition and B becomes
the regulator and thereby rentless soil. Thus, the rent for B not
only vanishes but is also deducted from every succeeding term
of the rent sequence; the result is thus determined. These cases are:

Case I, variant 2, when the conditions are such that soil A is
excluded (Table XIII). The total rent is 6x20, or 10x12=120,
as in Table XI.

Case II, variants 1 and 2. Here soil A is necessarily excluded in
accordance with the assumptions (tables XVI and XVII) and the
total rent is again 6 x 20=10x12=120 shillings.

Thus, this means: In the great majority of all possible cases
the rent rises— per acre of rent-bearing land as well as par¬
ticularly in its total amount — as a result of an increased invest¬
ment of capital in the land. Only in three out of the thirteen
analysed cases does its total remain unaltered. These are the

DIFFERENTIAL RENT II.— THIRD CASE

725

cases in which the lowest quality soil — hitherto the regulator,
and rentless — is eliminated from competition and the next
quality soil takes its place, i.e., becomes rentless. But even in
these cases, the rents upon the superior soils rise in comparison
with the rents due to the first capital investment; when the
rent for C falls from 24 to 20, then those for D and E rise from
36 and 48 to 40 and 60 shillings respectively.

A fall in the total rents below the level for the first invest¬
ment of capital (Table XI) would be possible only if soil B as
well as soil A were to be excluded from competition and soil
G were to become regulating and rentless.

Thus, the more capital is invested in the land, and the higher
the development of agriculture and civilisation in general in
a given country, the more rents rise per acre as well as in total
amount, and the more immense becomes the tribute paid by
society to the big landowners in the form of surplus-profits — so
long as the various soils, once taken under cultivation, are all
able to continue competing.

This law accounts for the amazing vitality of the class of big
landlords. No social class lives so sumptuously, no other class
claims the right it does to traditional luxury in keeping with its
“estate,” regardless of where the money for this purpose may
be derived, and no other class piles debt upon debt so light-
heartedly. And yet it always lands again on its feet — thanks to
the capital invested by other people in the land, which yields
it a rent, completely out of proportion to the profits reaped
therefrom by the capitalist.

However, the same law also explains why the vitality of the
big landlord is gradually being exhausted.

When the English corn duties were abolished in 1846, the
English manufacturers believed that they had thereby turned
the landowning aristocracy into paupers. Instead, they became
richer than ever. How did this occur? Very simply. In the first
place, the farmers were now compelled by contract to invest
£12 per acre annually instead of £8. And secondly, the landlords,
being strongly represented in the Lower House too, granted
themselves a large government subsidy for drainage projects
and other permanent improvements on their land. Since no total
displacement of the poorest soil took place, but rather, at worst,
it became employed for other purposes — and mostly only tempo¬
rarily — rents rose in proportion to the increased investment of
capital, and the landed aristocracy consequently was better off
than ever before.

726 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

But everything is transitory. Transoceanic steamships and the
railways of North and South America and India enabled some
very singular tracts of land to compete in European grain mar¬
kets. These were, on the one hand, the North American prairies
and the Argentine pampas — plains cleared for the plough by
Nature itself, and virgin soil which offered rich harvests for years
to come even with primitive cultivation and without fertilisers.
And, on the other hand, there were the land holdings of Russian
and Indian communist communities which had to sell a portion
of their produce, and a constantly increasing one at that, for the
purpose of obtaining money for taxes wrung from them — fre¬
quently by means of torture — by a ruthless and despotic state.
These products were sold without regard to price of production,
they were sold at the price which the dealer offered, because
the peasant perforce needed money without fail when taxes
became due. And in face of this competition — coming from virgin
plains as well as from Russian and Indian peasants ground down
by taxation — the European tenant farmer and peasant could
not prevail at the old rents. A portion of the land in Europe
fell decisively out of competition as regards grain cultivation,
and rents fell everywhere; our second case, variant 2— falling
prices and falling productivity of the additional investment of
capital— became the rule for Europe; and therefore the lament
of landlords from Scotland to Italy and from southern France
to East Prussia. Fortunately, the plains are far from being
entirely brought under cultivation; there are enough left to ruin
all the big landlords of Europe and the small ones into the
bargain. — F. E.]

The headings under which rent should be analysed are:

A. Differential rent.

1) Conception of differential rent. Water-power as an illus¬
tration. Transition to agricultural rent proper.

2) Differential rent I, arising from the varying fertility of
various plots of land.

3) Differential rent II, arising from successive investments
of capital in the same land. Differential rent II should be ana¬
lysed:

a) with a stationary,

b) falling,

c) and rising price of production.

DIFFERENTIAL RENT II.— THIRD CASE

727

And also

d) transformation of surplus-profit into rent.

4) Influence of this rent upon the rate of profit.

B. Absolute rent.

C. The price of land.

D. Final remarks concerning ground-rent.

Over-all conclusions to be drawn from the consideration of
differential rent in general are the following:

First, the formation of surplus-profit may take place in various
ways. On the one hand, based on differential rent I, that is, on the
investment of the entire agricultural capital in land consisting of
soils of varying fertility. Or, in the form of differential rent II,
based on the varying differential productivity of successive invest¬
ments of capital in the same land, i.e., a greater productivity —
expressed, e.g., in quarters of wheat— than is secured with the
same investment of capital in the worst land — rentless, but which
regulates the price of production. But no matter how this surplus-
profit may arise, its transformation into rent, i.e., its transfer
from farmer to landlord, always presupposes that the various ac¬
tual individual production prices of the partial outputs of the
individual successive investments of capital (i.e., independent of
the general price of production by which the market is regulated)
have previously been reduced to an individual average price of
production. The excess of the general regulating production price
of the output per acre ovnr this individual average production
price constitutes and is a measure of the rent per acre. In the case
of differential rent I, the differential results are in themselves dis¬
tinguishable because they take place upon different portions of
land — distinct from one another and existing side by side — given
an investment of capital per acre and a degree of cultivation con¬
sidered normal. In the case of differential rent II, they must
first be made distinguishable; they must in fact be transformed
back into differential rent I, and this can only take place
in the indicated way. For example, let us take Table III,
S. 226.*

Soil B yields for the first invested capital of £2V2— 2 quarters
per acre, and for the second investment of equal magnitude — 1V8

* Present edition: p. 687. — Ed.

728 transformation of surplus-profit into ground-rent

quarters; together — 3V2 quarters from the same acre. It is not
possible to distinguish which part of these 3V2 quarters is a product
of invested capital I and which part a product of invested capital
II, for it is all grown upon the same soil. In fact, the 3V2 quarters
is the yield from the total capital of £5; and the actual fact of the
matter is simply this: a capital of £2V2 yielded 2 quarters, and a
capital of £5 yielded 3V2 quarters rather than 4 quarters. The sit¬
uation would be just the same if the £5 yielded 4 quarters, i.e.,
if the yield from both investments of capital were equal; similarly,
if the yield were even 5 quarters, i.e., if the second investment
of capital were to yield a surplus of 1 quarter. The price of produc¬
tion of the first 2 quarters is £l1/a per quarter, and that of the sec¬
ond lx/2 quarters is £2 per quarter. Consequently the 3^ quarters
together cost £6. This is the individual price of production of
the total product, and, on the average, amounts to £1 142/7sh.
per quarter, i.e., approximately £l*/4. With the general price of
production determined by soil A, namely £3, this results in a
surplus-profit of £1V4 per quarter, and thus for the 3 V2 quarters,
a total of £43/8. At the average price of production of B this
corresponds to about lx/2 quarters. In other words, the surplus-
profit from B is represented by an aliquot portion of the output
from B, i.e., by the l1/, quarters, which express the rent in terms
of grain, and which sell— in accordance with the general price
of production— for £4l/„. But on the other hand, the excess prod¬
uct from an acre of B over that from an acre of A does not auto¬
matically represent surplus-profit, and thereby surplus-product.
According to our assumption, an acre of B yields 3l/2 quarters,
whereas an acre of A yields only 1 quarter. Excess product from
B is, therefore, 21/, quarters but the surplus-product is only 1V2
quarters; for the capital invested in B is twice that invested in

A, and thus its price of production is double. If an investment
of £5 were also to take place in A, and the rate of productivity
were to remain the same, then the output would be 2 quarters
instead of 1 quarter, and it would then be seen that the actual
surplus-product is determined by comparing 3 1/2 with 2, not 3 l/2
with 1; i.e., it is only l1/, quarters, not 2 1/2 quarters. Furthermore,
if a third investment of capital, amounting to £2l/a, were made in

B, and this were to yield only 1 quarter — this quarter would
then cost £3 as in A — its selling price of £3 would only cover the
price of production, would provide only the average profit, but
no surplus-profit, and would thus yield nothing that could be trans¬
formed into rent. The comparison of the output per acre from any
given soil type with the output per acre from soil A does not show

DIFFERENTIAL RENT II.— THIRD CASE

729

whether it is the output from an equal or from a larger invest¬
ment of capital, nor whether the additional output only covers
the price of production or is due to greater productivity of the
additional capital.

Secondly , assuming a decreasing rate of productivity for the ad¬
ditional investments of capital whose limit, so far as the new for¬
mation of surplus-profit is concerned, is that investment of capi¬
tal which just covers the price of production, i.e., which produces
a quarter as dearly as the same investment of capital in an acre
of soil A, namely, at £3, according to our assumption— it follows
from what has just been said: that the limit, where the total in¬
vestment of capital in an acre of B would no longer yield any
rent, is reached when the individual average production price
of output per acre of B would rise to the price of production per
acre of A.

If only investments of capital are made in B that yield the price
of production, i.e., yield no surplus-profit nor new rent, then this
indeed raises the individual average price of production per quar¬
ter, but does not affect the surplus-profit, and eventually the rent,
formed by previous investments of capital. For the average price
of production always remains below that of A, and when the price
excess per quarter decreases, the number of quarters increases
proportionately, so that the total excess in price remains unal¬
tered.

In the case assumed, the first two investments of capital in B
amounting to £5 yield 3 1/J quarters, thus according to our assump¬
tion l1^ quarters of rent=£4*/*- Now, if a third investment of
£2 1/8 is made, but one which yields only an additional quarter,
then the total price of production (including 20% profit) of the
4^2 quarters=£9; thus the average price per quarter=£2. The
average price of production per quarter upon B has thus risen
from £l6/7 to £2, and the surplus-profit per quarter, compared
with the regulating price of A, has fallen from £l*/7 to £1. But
1x41/2=£41/2 just as formerly l*/7 x31/2=£41/2.

Let us assume that a fourth and fifth additional investment of
capital, amounting to £2 */2 each, are made in B, which do no
more than produce a quarter at its general price of production.
The total product per acre would then be 61 /2 quarters and their
price of production £15. The average price of production per
quarter for B would have risen again — from £2* to &2*/lt — and
the surplus-profit per quarter, compared with the regulating price

* In the German 1894 edition this reads: 1. — Ed.

730 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

of production of A, would have dropped again — from £1 to £9/13.
But these £*/ls would now have to be calculated upon the basis of
61/* quarters instead of 4^ quarters. And 9/iS X61/a = l x4l/2=£41/2.

It follows from this, firstly, that no increase in the regulating
price of production is necessary under these circumstances, in
order to make possible additional investments of capital in the
rent-bearing soil — even to the point where the additional capital
completely ceases to produce surplus-profit and continues to yield
only the average profit. It follows furthermore that the total sur¬
plus-profit per acre remains the same here, no matter how much
surplus-profit per quarter may decrease; this decrease is always
balanced by a corresponding increase in the number of quarters
produced per acre. In order that the average price of production
might reach the level of the general price of production (hence
£3 for soil B), it is necessary that supplementary investments
be made whose output has a higher price of production than the
regulating one of £3. But we shall see that this alone does not
suffice without further ado to raise the average price of production
per quarter of B to the general price of production of £3.

Let us assume that soil B produced:

1) 31/* quarters whose price of production is, as before, £6, i.e.,
two investments of capital amounting to £2 V2 each both yielding
surplus-profit, but of decreasing amount.

2) 1 quarter at £3; an investment of capital in which the
individual price of production is equal to the regulating price of
production.

3) 1 quarter at £4; an investment of capital in which the individ¬
ual price of production is higher by 33% than the regulating price.

We should then have 51/, quarters per acre for £13 with an in¬
vestment of a capital of £107/10*; this is four times the original
invested capital, but not quite three times the output of the first
investment of capital.

51/, quarters at £13 gives an average price of production of
£2*1 n per quarter, i.e., an excess of £,/11 per quarter, assuming
the regulating price of production of £3. This excess may be trans¬
formed into rent. 5 1/s quarters sold at the regulating price of
production of £3 yield £16*^. After deducting the production
price of £13, a surplus-profit, or rent, of £31/1 remains, which,
calculated at the present average price of production per quarter
of B, that is, at £2*/n per quarter, represents l26/62 quarters.
The money-rent would be lower by £1 and the grain-rent by about

* In the German 1894 edition this reads: 10.— Ed.

DIFFERENTIAL RENT II —THIRD CASE

731

1lt quarter, but in spite of the fact that the fourth additional
investment of capital in B not only fails to yield surplus-profit,
but yields less than the average profit, surplus-profit, and rent
still continue to exist. Let us assume that, in addition to invest¬
ment 3), investment 2) also produces at a price exceeding the reg¬
ulating price of production. Then the total production is: 31/,
quarters for £6+2 quarters for £8; total 5 V2 quarters for £14
production price. The average price of production per quarter
would be £26/n and would leave an excess of £8/n. The 51/2 quar¬
ters, sold at £3, give a total of deducting the £14 produc¬

tion price leaves £2 ll2 for rent. At the present average price of
production upon B, this would be equivalent to 85/66 of a quarter.
In other words, rent is still yielded although less than before.

This shows, at any rate, that with additional investments of
capital in the better soils whose output costs more than the regu¬
lating price of production the rent does not disappear — at least
not within the bounds of admissible practice — although it must
decrease. It will decrease in proportion, on the one hand, to the
aliquot part formed by this less productive capital in the total
investment of capital, and on the other hand, in proportion to
the decrease in its productiveness. The average price of its produce
would still lie below the regulating price and would thus still
permit surplus-profit to be formed that could be transformed
into rent.

Let us now assume that, as a result of four successive invest¬
ments. of capital (£2 V2, £21/2, £5 and £5) with decreasing
productivity, the average price per quarter of B coincides with the
general price of production.

Capital

Profit

Price of
Production

Selling

Price

Proceeds

Surplus for

Rent

per Qr
£

Qrs

2V,

iv,

4 V,

IV,

IV.

■9

4V.

- v.

-IV,

—1

-3

732 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

The farmer, in this case, sells every quarter at its individual
price of production, and consequently the total number of quarters
at their average price of production per quarter, which coincides
with the regulating price of £3. Hence he still makes a profit of
20%=£3 upon his capital of £15. But the rent is gone. What has
become of the excess in this equalisation of the individual prices
of production per quarter with the general price of production?

The surplus-profit from the first £2J/2 was £3, from the second
£21/i it was £1V2; total surplus-profit from Vs of the invested cap¬
ital, that is, from £5 = £4V2 = 90%.

In the case of investment 3), the £5 not only fails to yield sur¬
plus-profit, but its output of H/j quarters, sold at the general
price of production, gives a deficit of £1 V2. Finally, in the case of
investment 4), which likewise amounts to £5, its output of 1
quarter, sold at the general price of production, gives a deficit of
£3. Both investments of capital together thus give a deficit of
£4 V2, which is equal to the surplus-profit of £4 1/2, realised from
investments 1) and 2).

The surplus-profit and deficit balance out. Therefore the rent
disappears. In fact, this is possible only because the elements of
surplus-value, which formed surplus-profit or rent, now enter
into the formation of the average profit. The farmer makes this
average profit of £3 on £15, or 20%, at the expense of the
rent.

The equalisation of the individual average price of production
of B to the general price of production of A, which regulates the
market-price, presupposes that the difference of the individual
price of the produce from the first investments of capital below
the regulating price is more and more compensated and finally
balanced out by the difference of the price of the produce from the
subsequent investments of capital above the regulating price.
What appears as surplus-profit, so long as the produce from the
first investments of capital is sold by itself, thus gradually be¬
comes part of its average price of production, and thereby enters
into the formation of the average profit, until it is finally com¬
pletely absorbed by it.

If only £5 are invested in B instead of £15 and the additional
21/a quarters of the last table are produced by taking 2V2 new
acres of A under cultivation with an investment of £21/2 per acre,
then the additional invested capital would amount to only £6V4,
i.e., the total investment in A and B for the production of these
6 quarters would be only £11V4, instead of £15, and their total
price of production, including profit, £13V2. The 6 quarters would

DIFFERENTIAL RENT II —THIRD CASE

733

still be sold for £18,- but the investment of capital would
have decreased by £3s/4, and the rent from B would be £4 l/2 per
acre, as before. It would be different if the production of the addi¬
tional 2V2 quarters required that a soil inferior to A, for instance,
A — 1 and A — 2, be taken under cultivation; so that the price
of production per quarter would he: for 1V2 quarters on soil A—
1 = £4, and for the last quarter on soil A — 2 = £6. In this case,
£6 would be the regulating price of productioh per quarter. The
31/2 quarters from B would then be sold for £21 instead of £10V2,
which would mean a rent of £15 instead of £4l/2, or, a rent in
grain of 2V2 quarters instead of 1V2 quarters. Similarly, a quarter
on A would now yield a rent of £3 = 1/2 quarter.

Before discussing this point further, another observation:

The average price of a quarter from B is equalised, i.e., coin¬
cides with the general production price of £3 per quarter, regulat¬
ed by A, as soon as that portion of the total capital which produces
the excess of 1V2 quarters is balanced by that portion of the total
capital which produces the deficit of 1V2 quarters. How soon this
equalisation is effected, or how much capital with under-produc¬
tiveness must be invested in B for this purpose, will depend, as¬
suming the surplus-productivity of the first investments of capital
to be given, upon the relative under-productiveness of the later
investments compared with an investment of the same amount
in the worst, regulating soil A, or upon the individual price of
production of their produce, compared with the regulating price.

The following conclusions can now be drawn from the foregoing:

First : So long as the additional capitals are invested in the
same land with surplus-productivity, even if the surplus-productiv¬
ity is decreasing, the absolute rent per acre in grain and money
increases, although it decreases relatively, in proportion to the
advanced capital (in other words, the rate of surplus-profit or
rent). The limit is established here by that additional capital
which yields only the average profit, or for whose produce the in¬
dividual price of production coincides with the general price of
production. The price of production remains the same under
these circumstances, unless the production from the poorer soils
becomes superfluous as a result of increased supply. Even when
the price is falling, these additional capitals may within certain
limits still produce surplus-profit, though less of it.

Secondly. The investment of additional capital yielding only
the average profit, whose surplus-productivity therefore=0, does

734 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

not alter in any way the amount of the existing surplus-profit,
and consequently of rent. The individual average price per
quarter increases thereby upon the superior soils; the excess per
quarter decreases, but the number of quarters which contain this
decreased excess increases, so that the mathematical product
remains the same.

Thirdly : Additional investments of capital, the produce of
which has an individual price of production exceeding the regu¬
lating price — the surplus-productivity is therefore not merely =0,
but less than zero, or a negative quantity, that is, less than the
productivity of an equal investment of capital in the regulating
soil A — bring the individual average price of production of the
total output from the superior soil closer and closer to the general
price of production, i.e., reduce more and more the difference
between them which constitutes the surplus-profit, or rent. An
increasingly greater part of what constituted surplus-profit or
rent enters into the formation of the average profit. But neverthe¬
less, the total capital invested in an acre of B continues to yield
surplus-profit, although the latter decreases as the amount of
capital with under-productiveness increases and to the extent
of this under-productiveness. The rent, with increasing capital
and increasing production, in this case decreases absolutely per
acre, not merely relatively with reference to the increasing magni¬
tude of the invested capital, as in the second case.

The rent can be eliminated only when the individual average
price of production of the total output from the better soil B coin¬
cides with the regulating price, so that the entire surplus-profit
from the first more productive investments of capital is con¬
sumed in the formation of average profit.

The minimum limit of the drop in rent per acre is that point
at which it disappears. But this point does not occur as soon as
the additional investments of capital are under-productive, but
rather as soon as the additional investment of under-productive
capital becomes so large in magnitude that its effect is to cancel
the over-productiveness of the first investments of capital, so
that the productiveness of the total invested capital becomes
the same as that of the capital invested in A, and the individual
average price per quarter of B becomes therefore the same as that
per quarter of A.

In this case too, the regulating price of production, £3 per
quarter, would remain the same, although the rent had disap¬
peared. Only beyond this point would the price of production have
to rise in consequence of an increase either in the extent of under-

DIFFERENTIAL RENT II.— THIRD CASE

735

productiveness of the additional capital or in the magnitude of
the additional capital of equal under-productiveness. For in¬
stance, if, in the above table {S. 265*) 2 V2 quarters were produced
instead of 1V2 quarters upon the same soil at £4 per quarter, we
would have had a total of 7 quarters for £22 price of production;
a quarter would have cost £3l/7; it would thus be £V7 above the
general price of production, and the latter would therefore have
to rise.

For a long time, then, additional capital with under-productive¬
ness, or even increasing under-productiveness, might be invested
until the individual average price per quarter from the best
soils became equal to the general price of production, until the ex¬
cess of the latter over the former— and thereby the surplus-profit
and the rent — entirely disappeared.

And even then, the disappearance of rent from the better soils
would only signify that the individual average price of their
produce coincides with the general price of production, so that an
increase in the latter would not yet be required.

In the above illustration, upon better soil B — which is how¬
ever the lowest in the sequence of better or rent-bearing soils —
3V2 quarters were produced by a capital of £5 with surplus-
productiveness and 2 V2 quarters by a capital of £10 with under¬
productiveness, i.e., a total of 6 quarters; 5 6/la of this total is
thus produced by the latter portions of capital with under-produc¬
tiveness. And it is only at this point that the individual average
price of production of the 6 quarters rises to £3 per quarter and
thus coincides with the general price of production.

Under the law of landed property, however, the latter 2V2
quarters could not have been produced in this way at £3 per quar¬
ter, except when they could be produced upon 2V2 new acres of
soil A. The case in which the additional capital produces only at the
general price of production, would have constituted the limit.
Beyond this point, the additional investment of capital in the
same land would have had to cease.

Indeed, if the farmer once pays £4*/2 rent for the first two in¬
vestments of capital, he must continue to pay it, and every in¬
vestment of capital which produced a quarter for more than £3**
would result in a deduction from his profit. The equalisation of
the individual average price, in the case of under-productiveness,
is thereby prevented.

* Present edition: p. 731. — Ed.

** In the German 1894 edition this reads: for less than £3. — Ed.

736 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Let us take this case in the previous illustration, where the price
of production for soil A, £3 per quarter, regulates the price for B.

Capital

Profit

Price of
Produc¬
tion

Output

Qra

Price of
Produc¬
tion per
Qr
£

Selling Price

Surplus-

Profit

Loss

per Qr
£

Total

2V,

IV,

2V,

IV,

4V.

IV,

4V,

IV.

■

4V,

The price of production for the 3 V2 quarters in the first two in¬
vestments of capital is likewise £3 per quarter for the farmer,
since he has to pay a rent of £4Vt; thus the difference between his
individual price of production and the general price of production
is not pocketed by him. For him, then, the excess in produce
price for the first two investments of capital cannot serve to
balance out the deficit incurred by the produce in the third and
fourth investments of capital.

The 1V2 quarters from investment 3) cost the farmer £6, profit
included; but at the regulating price of £3 per quarter, he can sell
them for only £4V2. In other words, he would not only lose his
whole profit, but £V2, or 10% of his invested capital of £5, over
and above it. The loss of profit and capital in the case of invest¬
ment 3) would amount to £172, and in the case of investment
4) to £3, i.e., a total of £4 V2, or just as much as the rent from
the better investments of capital; the individual price of produc¬
tion for the latter, however, cannot take part in equalising the
individual average price of production of the total product from
B, because the excess is paid out as rent to a third party.

If it were necessary, to meet the demand, to produce the addi¬
tional 17a quarters by the third investment of capital the regulat¬
ing market-price would have to rise to £4 per quarter. In conse¬
quence of this rise in the regulating market-price, the rent from
B would rise for the first and second investments, and rent would
be formed upon A.

* In the German 1894 edition this reads: 3. — Ed.

DIFFERENTIAL RENT II —THIRD CASE

737

Thus although differential rent is but a formal transformation
of surplus-profit into rent, and property in land merely enables
the owner in this case to transfer the surplus-profit of the farmer
to himself, we find nevertheless that successive investment of cap¬
ital in the same land, or, what amounts to the same thing, the
increase in capital invested in the same land, reaches its limit far
more rapidly when the rate of productiveness of the capital de¬
creases and the regulating price remains the same; in fact a more
or less artificial barrier is reached as a consequence of the mere
formal transformation of surplus-profit into ground-rent, which
is the result of landed property. The rise in the general price
of production, which becomes necessary here within more nar¬
row limits than otherwise, is in this case not merely the cause of
the increase in differential rent, but the existence of differential
rent as rent is at the same time the reason for the earlier and more
rapid rise in the general price of production — in order to ensure
thereby the increased supply of produce that has become necessary.

The following should furthermore be noted:

By an additional investment of capital in soil B, the regulat¬
ing price could not, as above, rise to £4 if soil A were to supply
the additional produce below £4 by a second investment of capi¬
tal, or if new and worse soil than A, whose price of production
were indeed higher than £3 but lower than £4, were to enter into
competition. We see, then, that differential rent I and differential
rent II, while the first is the basis of the second, serve simultane
ously as limits for one another, whereby now a successive invest¬
ment of capital in the same land, now an investment of capital
side by side in new additional land, is made. In like manner
they limit each other in other cases; for instance, when better
soil is taken up.

CHAPTER XLIV

DIFFERENTIAL RENT
ALSO ON THE WORST CULTIVATED SOIL

Let us assume the demand for grain is rising, and the supply-
can only result from successive investments of capital under
conditions of under-productiveness in the rent-bearing soils, or
by additional investment of capital, also with decreasing produc¬
tivity, in soil A, or by the investment of capital in nfew lands of
inferior quality than A.

Let us take soil B as representative of the rent-bearing soils.

The additional investment of capital demands an increase in
the market-price above the hitherto prevailing price of production
of £3 per quarter, in order to make possible the increased produc¬
tion upon B of one quarter (which may here stand for one mil¬
lion quarters, just as every acre may stand for one million acres).
Increased output may also be yielded by soils C and D, etc., the
soils bearing the highest rent, but only with decreasing surplus-
productiveness; but it is assumed that the quarter from B is
necessary in order to meet the demand. If this quarter is more
cheaply produced by investing more capital in B than with the same
addition of capital to A, or by descending to soil A — 1, which
may, e.g., require £4 to produce a quarter, whereas the addition
to capital A might do so for £3s/4, then the additional capital on
B will regulate the market-price.

A produces a quarter for £3, as heretofore. Similarly B, as be¬
fore, produces a total of 3V2 quarters at an individual price of
production of £6 for its total output. Now, if an additional £4
of production price (including profit) becomes necessary on B in
order to produce an additional quarter, whereas it could have been
produced on A for £3s/4, then it would naturally be produced
on A, rather than on B. Let us assume, then, that it can be pro-

DIFFERENTIAL RENT ON WORST SOIL

duced cn B with the additional price of production of £3Vt. In
this case, £3V, would become the regulating price for the entire
output. B would now sell its present output of 4VS quarters for
£153/4. Of this £6 is the price of production for the first 31/,
quarters and the £3V, for the last quarter, i.e., a total of £9 V,.
This leaves a surplus-profit for rent=£6V4 as against the former
£4VS. In this case, an acre of A would also yield a rent of £V,;
but it would not be the worst soil A, but rather the better soil B
that would regulate the price of production of £3VS. Of course,
we assume here that new soil of quality A and equally favourable
location as that hitherto cultivated is not available, but that
either a second investment of capital in the already cultivated plot
A at a higher price of production, or the cultivation of an even
poorer soil A — 1, is required. As soon as differential rent II comes
into force through successive investments of capital, the limits
of the rising price of production may be regulated by better soil;
and the worst soil, the basis of differential rent I, may also yield
rent. Thus, even with a single differential rent, all cultivated
land would yield rent. We would then have the following two
tables, where by price of production we mean the sum of the in¬
vested capital plus 20% profit; in other words, on every £21/s of
capital £V, of profit or a total of £3.

Type

Soil

Acres

Price of
Produc¬
tion

Total

Proceeds

Grain-

Rent

Qrs

Money,

Rent

Id/,

IV,

41/,

16V,

iov.

22V,

16V,

52V,

10 V,

31V,

This is the state of affairs before the new capital of £3Vt, which
yields only one quarter, is invested in B. After this investment,
the situation looks as follows:

740 TRANSFORMATION OF SURPLUS-PROFIT INTO OROUND-RENT

Typo

Soil

Acres

Price o/
Produc¬
tion

Output

Qrs

Selling

Price

Proceeds

Grain-

Rent

Qrs

Money-

Rent

37,

9V,

47,

37,

15*/4

l“/u

67«

57,

37,

19‘/t

3»7u

137,

77,

37,

267,

5u/u

Total

187,

647,

117,

407*

[This, again, is not quite correctly calculated. First of all, the
cost of the 472 qrs for farmer B is, in the first place, £97, in price
of production and, secondly, £47, in rent, i.e., a total of £14;
average per quarter =£37,. This average price of his total produc¬
tion thus becomes the regulating market-price. Thus, the rent
on A would amount to £7, instead of £7,, and that on B would
remain £47, as heretofore; 47, qrs at £37, =£14 and, if we
deduct £9 V2in price of production, £4x/2 remain for surplus-profit.
We see, then, that in spite of the required change in numerical
values this illustration shows how, by means of differential rent
II, better soil, already yielding rent, may regulate the price and
thus transform all soil, even hitherto rentless, into rent-bearing
soil. — F. E. J

The grain-rent must rise as soon as the regulating price of pro¬
duction of the grain rises, i.e., as soon as the price of production
of a quarter of grain from the regulating soil, or the regulating
invested capital in one of the various soil types, rises. It is the
same as though all soils had become less productive and produced,
e.g., only 5/7 quarter instead of 1 quarter with every new invest¬
ment of £2l/2. Whatever else they produce in grain with the same
investment of capital is transformed into surplus-product, which
represents the surplus-profit and therefore the rent. Assuming
the rate of profit remains the same, the farmer can buy less grain
with his profit. The rate of profit may remain the same if wages
do not rise — either because they are depressed to the physical
minimum, i.e., below the normal value of labour-power; or be¬
cause the other articles of consumption needed by the labourer
and supplied by manufacture have become relatively cheaper;
or because the working-day has become longer or more intensive,

DIFFERENTIAL RENT ON WORST SOIL

741

so that the rate of profit in non-agricultural lines of production,
which, however, regulates the agricultural profit, has remained
the same or has risen; or, finally, because more constant and less
variable capital is employed in agriculture, even though the
amount of capital invested is the same.

We have thus considered the first method by which rent may
arise on the hitherto worst soil A without taking still worse soil
under cultivation; that is, rent may arise from the difference be¬
tween its individual, hitherto regulating, price of production and
the new, higher price of production, whereby the last additional
capital employed under conditions of under-productiveness upon
the better soil supplies the necessary additional produce.

If the additional produce had to be supplied by soil A — 1,
which cannot produce a quarter for less than £4, then the rent
per acre of A would have risen to £1. But, in this case, soil A— 1
would have taken the place of A as the worst cultivated soil, and
the latter would have moved into the lowest position in the
sequence of rent-bearing soils. Differential rent I would have
changed. This case, then, is not included in the consideration
of differential rent II, which arises from the varying produc¬
tiveness of successive investments of capital in the same piece
of land.

But aside from this, differential rent may arise on soil A in two
other ways.

With the price unchanged — any given price, even a lower one
compared to former ones— when the additional investment of
capital results in surplus-productiveness, which prima facie, and
up to a certain point must always be the case precisely on the
worst soil.

Secondly, however, when the productiveness of successive in¬
vestments of capital in soil A decreases.

It is assumed in both cases that the increased production is
required to meet demand.

But from the point of view of differential rent, a peculiar diffi¬
culty arises here owing to the previously developed law — according
to which it is always the individual average price of production
per quarter for the total production (or the total outlay of capital)
which acts as the determining factor. In the case of soil A, how¬
ever, there is not, as in the cases of the better soils, another price
of production which limits for new investments of capital the
equalisation of the individual with the general price of produc¬
tion. For the individual price of production of A is precisely the
general price of production regulating the market-price.

742 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

Let us assume:

1) When the productiveness of successive investments of capital
is increasing, 1 acre of A will produce 3 qrs instead of 2 qrs given
an investment of £5— corresponding to a price of production of
£6. The first investment of £2V2 yielded 1 qr, the second — 2 qrs.
In this case, a price of production of £6 will yield 3 qrs, so that the
average cost of a quarter will be £2; i.e., if the 3 qrs are sold at
£2 per quarter, then A, as heretofore, does not yield any rent, but
only the basis of differential rent II has been altered; the regulat¬
ing price of production is now £2 instead of £3; a capital of £21/2
now produces an average of lVj qrs on the worst soil, instead of
1 qr, and now this is the official productivity for all better soils
given an investment of £21/4. From now on, a portion of their
former surplus-product enters into the formation of their neces¬
sary output, just as a portion of their surplus-profit enters into
forming the average profit.

On the other hand, if the calculation is made upon the basis of
better soils, where the average calculation does not alter the ab¬
solute surplus at all, because for them the general price of produc¬
tion is the limit for the investment of capital, then a quarter
from the first investment of capital costs £3 and the 2 qrs from
the second investment cost only £1 1/2 each. This would thereby
give rise to a grain-rent of 1 qr and a money-rent of £3 on A, but
the 3 qrs would be sold for the old price of £9. If a third invest¬
ment of £21/2 were made under conditions of the same productive¬
ness as the seeond investment, then the total would be 5 qrs for
a price of production of £9. If the individual average price of
production of A should remain the regulating price, then a quarter
would now be sold at £l4/6. The average price would have fallen
once more — not through a new rise in productiveness of the third
investment of capital, but merely through the addition of a new
investment of capital having the same additional productiveness
as the second. Instead of raising the rent as on the rent-bearing
soils, the successive investments of capital in soil A of higher,
but constant productiveness would proportionally lower the price
of production and thereby, everything else being equal, the differ¬
ential rent on all other soils. On the other hand, if the first
investment of capital which produces 1 qr at a price of production of
£3 should in itself remain regulating, then 5 qrs would be sold
for £15, and the differential rent of the later investments of capi¬
tal in soil A would amount to £6. The additional capital per acre
of soil A, however it is applied, would be an improvement in this
case, and would make the original portion of capital more produc-

DIFFERENTIAL RENT ON WORST SOIL

743

tive. It would be ridiculous to say that1/, of the capital had pro¬
duced 1 qr and the other 2/,— 4 qrs. For £9 per acre would always
produce 5 qrs, while £3 would produce only 1 qr. Whether or not
a rent would arise here, whether or not a surplus-profit would
be derived, would depend wholly upon the circumstances. Nor¬
mally the regulating price of production would have to fall. This
would be the case, if this improved but more expensive cultiva¬
tion of soil A should occur only because it also takes place on the
better soils, in other words, if a general revolution in agriculture
should occur; so that when we now refer to the natural fertility of
soil A, it is assumed that it is worked with £6 or £9 instead of
£3. This would particularly apply if the bulk of cultivated acres
of soil A, which furnish the main supply of a given country, should
employ this new method. But if the improvement should at first
extend only to a small area of A, then this better cultivated por¬
tion would yield a surplus-profit, which the landlord would be
quick to transform wholly or in part into rent, and to fix in the
form of rent. In this way — if the demand kept pace with the in¬
creasing supply — as more and more of soil A began to employ
the new method of cultivation, rent might be gradually formed
on all soil of quality A, and the surplus-productivity might be
eliminated wholly or in part, depending on market conditions.
The equalisation of the price of production of A to the average
price of its produce obtained under conditions of increased out¬
lay of capital might thus be prevented by fixing the surplus-pro&t
of this increased investment of capital in the form of rent. Thus,
as was previously seen to be the case for the better soils when the
productiveness of the additional capital decreased, it would again
be the transformation of surplus-profit into ground-rent, i.e., the
intervention of property in land, which would raise the price of
production, instead of the differential rent merely being the
result of the difference between the individual and the general
price of production. It would prevent, in the case of soil A, the
coincidence of both prices because it would interfere with the
regulation of the price of production by the average price of pro¬
duction on A; it would thus maintain a higher price of production
than necessary and thereby create rent. Even if grain were freely
imported from abroad, the same result could be brought about
or perpetuated by compelling farmers to use soil capable of com¬
peting in grain cultivation without yielding rent, at the price
of production regulated from abroad, for other purposes, e.g.,
pasturage, so that only rent-bearing soils would be used for grain
cultivation, i.e., only soils whose individual average price of

744 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

production per quarter were below that determined from abroad.
On the whole, it is to be assumed that in the given case, the price
of production will fall, but not to the level of its average; it will
be higher than the average, but below the price of production
of the worst cultivated soil A, so that the competition from new
soil A is limited.

2) When the productiveness of additional capitals is decreasing.

Let us assume that soil A — 1 requires £4 to produce the addi¬
tional quarter, whereas soil A produces it for £33/t, i.e., more
cheaply, but still £3/4 more dearly than the quarter produced
by its first investment of capital. In this case, the total price of
the two quarters produced upon A would =£63/4; thus the average
price per quarter=£33/g. The price of production would rise, but
only by £3/8, whereas it would rise by another £3/8, or to £33/4, if
the additional capital were invested in new land which produced
at £33/4, and it would thus bring about a proportional increase
in all other differential rents.

The price of production of £33/g per quarter for A would thus
be equalised to its average price of production with an increased
Investment of capital, and would be the regulating price; thus,
it would not yield any rent, since it would not produce any sur¬
plus-profit.

However, if this quarter, produced by the second investment
of capital, were sold for £33/4, soil A would now yield a rent of £3/4,
and indeed, on all acres of A in which no additional investment
of capital had taken place and which thus would still produce at
£3 per quarter. So long as any uncultivated fields of A remain,
the price could rise only temporarily to £33/4. Competition
from new fields of A would hold the price of production at £3
until all land of type A, whose favourable location enables it to
produce a quarter at less than £33/4, would be exhausted. This is
then what we would assume, although the landlord, so long as an
acre of land yields rent, will not let a tenant farmer have another
acre rent-free.

It would again depend to what extent a second investment of
capital in the available soil A had become general, whether the
price of production is equalised at the average price or whether the
individual price of production of the second investment of capital
becomes regulating at £33/4. The latter occurs only when the land-
owner has sufficient time until demand is satisfied to fix as rent
the surplus-profit derived at the price of £33/4 per qr.

DIFFERENTIAL RENT ON WORST SOIL

745

Concerning decreasing productiveness of the soil with succes¬
sive investments of capital, see Liebig.* We have observed that
the successive decrease in surplus-productiveness of invested capi¬
tal invariably increases the rent per acre, so long as the price of
production remains constant, and that this may occur even with
a falling price of production.

But, in general, the following is to be noted.

From tbe standpoint of the capitalist mode of production, a
relative increase in the price of products always takes place when
these products cannot be secured unless an expenditure or payment
not previously made is incurred. For by the replacement of capi¬
tal consumed in production we mean only the replacement of
values represented by certain means of production. Natural ele¬
ments entering as agents into production, and which cost nothing,
no matter what role they play in production, do not enter as com¬
ponents of capital, but as a free gift of Nature to capital, that is,
as a free gift of Nature’s productive power to labour, which, how¬
ever, appears as the productiveness of capital, as all other produc¬
tivity under the capitalist mode of production. Therefore, if such
a natural power, which originally costs nothing, takes part in
production, it does not enter into the determination of price,
so long as the product which it helped to produce suffices to meet
the demand. But if in the course of development, a larger output
is demanded than that which can be supplied with the help of
this natural power, i.e., if this additional output must be created
without the help of this natural power, or by assisting it with
human labour-power, then a new additional element enters into
capital. A relatively larger investment of capital is thus required
in order to secure the same output. All other circumstances remain¬
ing the same, a rise in the price of production takes place.

(From a note-book “begun in mid-February 1876.” [/\ E. ])
Differential rent and rent as mere interest on capital incorpo¬
rated in the soil.

The so-called permanent improvements — which change the physi¬
cal, and, in part, also the chemical conditions of the soil by
means of operations requiring an expenditure of capital, and
which may he regarded as an incorporation of capital in the soil —
nearly all amount to giving a particular piece of land in a certain

• Liebig, Die Chemie in ihrer Anwendung auf Agricultur und Physiolo-
gie, Braunschweig, 1862. — Ed.

746 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

limited locality such properties as are naturally possessed by some
other piece of land elsewhere, sometimes quite near by. One piece
of land is naturally level, another has to be levelled; one possesses
natural drainage, another requires artificial drainage; one is
endowed by Nature with a deep layer of top soil, another needs
artificial deepening; one clay soil is naturally mixed with the prop¬
er amount of sand, another has to be treated to obtain this pro¬
portion; one meadow is naturally irrigated or covered with layers
of silt, another requires labour to obtain this condition, or, in the
language of bourgeois economics, it requires capital.

It is indeed a truly amusing theory, whereby here, in the case
of one piece of land whose comparative advantages have been
acquired, rent is interest, whereas in the case of another piece of
land which possesses these advantages naturally, it is not inter¬
est. (In fact, this is so distorted in practice that since rent really
coincides in the one case with interest, it is falsely also called
interest in the other cases, where this is positively not the case.)
However, land yields rent after capital is invested not because
capital is invested, but because the invested capital makes this
land more productive than it formerly was. Assuming that all
the land of a given country requires this investment of capital,
every piece of land which has not received it must first pass
through this stage, and the rent (interest yielded in the given
case) borne by land already provided with investment of capital
constitutes differential rent just as though it naturally possessed
this advantage and the other land had first to acquire it artifi¬
cially.

This rent too, which may be resolved into interest, becomes
pure differential rent as soon as the invested capital is amor¬
tised. Otherwise, one and the same capital would have to exist
twiee as capital.

A most amusing phenomenon is that all opponents of Ricardo
who oppose the idea that value determination is based exclusive¬
ly on labour rather than regarding differential rent as arising
from differences in soil, point out that here Nature rather than
labour determines value; but at the same time they credit this
determination to the location of the land, or — and to an even
greater extent — the interest on capital put into the land during
its cultivation. The same labour produces the same value in a
product created during a given period of time; but the magnitude
or quantum of this product, and consequently also the portion of

DIFFERENTIAL RENT ON WORST SOIL

747

value associated with some aliquot part of this product, depends
for a given quantity of labour solely upon the quantum of product,
and the latter, in turn, depends upon the productivity of the
given quantum of labour rather than the absolute magnitude of this
quantum. It is immaterial whether this productivity is due to
Nature or to society. Only in the case when the productivity it¬
self costs labour, and consequently capital, does it increase the
price of production by a new element — which Nature by itself
does not do.

CHAPTER XLV

ABSOLUTE GROUND-RENT

In the analysis of differential rent we proceeded from the as¬
sumption that the worst soil does not pay any ground-rent; or, to
put it more generally, only such land pays ground-rent whose
product has an individual price of production below the price of
production regulating the market, so that in this manner a sur¬
plus-profit arises which is transformed into rent. It is to be noted,
to begin with, that the law of differential rent as such is entirely
independent of the correctness or incorrectness of this assumption.

Let us call the general price of production, by which the market
is regulated, P. Then, P coincides with the individual price of pro¬
duction of the output of the worst soil A; i.e., its price pays for
the constant and variable capital consumed in production plus
the average profit (=proCt of enterprise plus interest).

The rent in this case is equal to zero. The individual price of
production of the next better soil B is=P', and P>P'; that is,
P pays for more than the actual price of production of the product
of soil B. Let us now assume that P — P'=d; d, the excess of P
over P', is therefore the surplus-profit which the farmer of soil
type B realises. This d is transformed into rent, which must be
paid to the landlord. Let P" be the actual price of production of
the third type of soil G, and P — P" = 2d; then this 2d is convert¬
ed into rent; similarly, let P'" be the individual price of produc¬
tion of the fourth type of soil D, and P — P"'=3d, which is trans¬
formed into ground-rent, etc. Now let us assume the premise for
soil A, that rent=0 and therefore the price of its product=P-|-0,
is erroneous. Assume rather that it, too, yields rent=r. In that
case, two different conclusions follow.

First: The price of the product of soil A would not be regulated
by the price of production on the latter, but would include an ex-

ABSOLUTS GROUND-RENT

749

cess above this price, i.e., would be=P+r. Because assuming the
capitalist mode of production to be functioning normally, that is,
assuming that the excess r which the farmer pays to the landlord
represents neither a deduction from wages nor from the average
profit of capital, the farmer can only pay it by selling the product
above its price of production, thus, yielding him surplus-profit
if he did not have to turn over this excess to the landlord in
the form of rent. The regulating market-price of the total out¬
put on the market derived from all soils would then not be the
price of production which capital generally yields in all spheres
of production, i.e., a price equal to costs plus average profit, but
rather the price of production plus the rent, P-(-r, and not P
For the price of the product of soil A represents generally the
limit of the regulating general market-price, i.e., the price at
which the total product can be supplied, and to that extent it
regulates the price of this total product.

But secondly : Although the general price of agricultural prod¬
ucts would in this case be significantly modified, the law of
differential rent would nevertheless in no way lose its force. For
if the price of the product of soil A, and thereby the general
m8rket-price=P+r, the price for soils B, C, D, etc., would like¬
wise— P-j-r. But since P— P'=d for soil B, then (P+r)— (P'-t-r)
would likewise=d, and P — P"=(P-f r)— (P"+r)=2d for soil
C; and finally P— P"' — (P-f-r) — (P'"-fr)=3d for soil D, etc.
Thus the differential rent would be the same as before and would
be regulated by the same law, although the rent would include
an element independent of this law and would show a general
increase together with the price of the agricultural product. It
follows, then, that no matter what the case may be as regards the
rent of the least fertile soils, the law of differential rent is not only
independent of it, but that the only manner of grasping differen¬
tial rent in keeping with its character is to let the rent on soil A=0.
Whether this actually =0 or>0 is immaterial so far as the
differential rent is concerned, and, in fact, does not come into
consideration.

The law of differential rent, then, is independent of the results
of the following study.

If we were now to inquire more deeply into the basis of the as¬
sumption that the product of the worst soil A does not yield any
rent, the answer would of necessity be as follows: If the market-
price of the agricultural product, say grain, attains that level
where an additional investment of capital in soil A results in the
usual price of production, i.e., the usual average profit on the

750 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

capital is yielded, then this condition suffices for investing the
additional capital in soil A. In other words, this condition is
sufficient for the capitalist to invest new capital yielding the usual
profit and to employ it in the normal manner.

It should be noted here that in this case, too, the market-price
must be higher than the price of production of A. For as soon as
the additional supply is created, it is evident that the relation be¬
tween supply and demand becomes altered. Formerly the supply
was insufficient. Now it is sufficient. Hence the price must fall.
In order to fall, it must have been higher than the price of produc¬
tion of A. But due to the fact that soil A newly taken under cul¬
tivation is less fertile, the price does not fall again as low as when
the price of production of soil B regulated the market. The price
of production of A constitutes the limit, not for the temporary
but for the relatively permanent rise of the market-price. On the
other hand, if the new soil taken under cultivation is more fertile
than the hitherto regulating soil A, and yet only suffices to meet
the increased demand, then the market-price remains unchanged.
The investigation of the question whether the poorest type of
soil yields rent, however, coincides in this case too with our
present inquiry, for here too the assumption that soil A
does not yield any rent would be explained by the fact that
the market-price is sufficient for the capitalist farmer to
exactly cover, with this price, the invested capital plus the
average profit; in brief, it would be explained by the fact
that the market-price yields him the price of production of his
commodities.

At any rate, the capitalist farmer can cultivate soil A under
these conditions, inasmuch as he, as capitalist, has such power of
decision. The prerequisite for the normal expansion of capital in
soil A is now present. But from the premise that the capitalist
farmer can now invest capital in soil A under average conditions
for the expansion of capital, even if he did not have to pay any
rent, it nowise follows that this land, belonging to category A, is
now at the disposal of the farmer without further ado. The fact
that the tenant farmer could realise the usual profit on his capital
did he not have to pay any rent, is by no means a basis for the
landlord to lend his land gratis to the farmer and to become so
philanthropic as to grant credit gratuit for the sake of a business
friendship. Such an assumption would mean the abstraction of
landed property, the elimination of landownership, and it is
precisely the existence of the latter that constitutes a limitation
to the investment of capital and the free expansion of capital

ABSOLUTE GROUND-RENT

751

in the land. This limitation does not at all disappear before the
simple reflection of the farmer that the level of grain prices would
enable him to realise the usual profit from the investment of his
capital in the exploitation of soil A did he not have to pay any rent;
in other words, if he could proceed in effect as though lauded prop¬
erty did not exist. But differential rent presupposes the existence
of a monopoly in landownership, landed property as a limitation
to capital, for without it surplus-profit would not be transformed
into ground-rent nor fall to the share of the landlord instead of the
farmer. And landed property as a limitation continues to exist
even when rent in the form of differential rent disappears, i.e.,
on soil A. If we consider the cases in a country with capitalist
production, where the investment of capital in the land can take
place without payment of rent, we shall find that they are all
based on a de facto abolition of landed property, if not also the
legal abolition; this, however, can only take place under very
specific circumstances which are by their very nature acci¬
dental.

First: When the landlord is himself a capitalist, or the capital¬
ist is himself a landlord. In this case he may himself manage his
land as soon as market-price has risen sufficiently to enable him
to get, from what is now soil A, the price of production, that is,
replacement of capital plus average profit. But why? Because
for him landed property does not constitute an obstacle to the in¬
vestment of capital. He can treat his land simply as an element
of Nature and therefore be guided solely by considerations of
expansion of his capital, by capitalist considerations. Such cases
occur in practice, but only as exceptions. Just as capitalist cultiva¬
tion of the soil presupposes the separation of functioning capital
from landed property, so does it as a rule exclude self-manage¬
ment of landed property. It is immediately evident that this case
is a purely accidental one. If the increased demand for grain re¬
quires the cultivation of a larger area of soil type A than is in the
hands of self-managing proprietors, in other words, if a part of
it must be rented to be at all cultivated, then this hypothetical
lifting of the limitation created by landed property to the invest¬
ment of capital at once collapses. It is an absurd contradiction
to start out with the differentiation under the capitalist mode of
production between capital and land, farmers and landlords, and
then to turn round and assume that landlords, as a rule, manage
their own land wherever and whenever capital would not draw rent
from the cultivation of the soil if landed property were not separate
and distinct from it. (See the passage by Adam Smith concerning

752 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

mining rent, quoted below.*) This abolition of landed property
is fortuitous. It may or may not occur.

Secondly. In the total area of a leasehold there may be certain
portions which do not yield any rent at the existing level of mar¬
ket-prices, so that they are in fact loaned gratis; but the landlord
does not look upon it in that light, because he sees the total rent¬
al of the leased land, not the specific rent of the individual com¬
ponent plots. In this case, as regards the rentless component plots
of the leasehold, landed property as a limitation to the invest¬
ment of capital is eliminated for the capitalist farmer; and this,
indeed, by contract with the landlord himself. But he does not
pay rent for these plots merely because he pays rent for the land
associated with them. A combination is here presupposed whereby
poorer soil A does not have to be resorted to as a distinctly new
field of production in order to produce the deficit supply, but
rather whereby it merely constitutes an inseparable part of the bet¬
ter land. But the case to be investigated is precisely that in which
certain pieces of land of soil type A must be independently
managed, i.e., for tbe conditions generally prevailing under the
capitalist mode of production, they must be independently leased.

Thirdly: A farmer may invest additional capital in the same
leasehold even if the additional product secured in this manner
yields him only the price of production at the prevailing market-
prices, i.e., provides him with the usual profit but does not enable
him to pay any additional rent. He thus pays ground-rent with
one portion of the capital invested in the land, but not with the
other. How little this assumption helps to solve the problem, how¬
ever, is seen from the following: If the market-price (and the fer¬
tility of the soil) enables him to obtain an additional yield with
his additional capital, which, as in the case of the old capital,
yields a surplus-profit in addition to the price of production, he
is able to pocket this surplus-profit so long as his lease does not
expire. But why? Because the limitation placed by landed prop¬
erty on the investment of his capital in land has been eliminated
for the duration of the lease. But the simple fact that additional
soil of poorer quality must be independently cleared and inde¬
pendently leased in order for him to secure this surplus-profit
proves irrefutably that the investment of additional capital in
the old soil no longer suffices to produce the required increased
supply. One assumption excludes the other. It is true that now
one might say: The rent on the worst soil A is itself differential

* Present edition: p. 775 .—Ed.

ABSOLUTE GROUND-RENT

753

rent — whether the comparison is made with respect to the land
cultivated by the owner himself (this occurs, however, as a purely
chance exception) or with respect to the additional investment
of capital in the old leaseholds which do not yield any rent.
However, this would be 1) a differential rent which does not arise
from the difference in fertility of the various categories of soil,
and which therefore would not presuppose that soil A does not
yield any rent and its produce sells at the price of production;
and 2) the circumstance whether additional investments of capi¬
tal in the same leasehold yield rent or not is just as irrelevant to
the question as to whether the new soil of class A to be taken un¬
der cultivation pays rent or not, as it is irrelevant to, say, the
establishment of a new and independent manufacturing business
whether another manufacturer in the same line invests a portion
of his capital in interest-bearing paper because he cannot use
all of it in his business, or whether he makes certain improve¬
ments which do not yield him the full profit, but nevertheless do
yield more than interest. This is of secondary importance to him.
The additional new establishments, on the other hand, must
yield the average profit and are organised in the hope of obtain¬
ing this average profit. It is true, to be sure, that the additional
investments of capital in the old leaseholds and the additional
cultivation of new land of soil type A mutually restrict one
another. The limit, up to "which additional capital may be invested
in the same leasehold under less favourable conditions of produc¬
tion, is determined by the competing new investments in soil
A; on the other hand, the rent which this category of soil can
yield is limited by the competing additional investments of capi¬
tal in the old leaseholds.

But all this dubious subterfuge does not solve the problem,
which, simply stated, is this: Assume the market-price of grain
(which in this inquiry stands for products of the soil in general)
to be sufficient to permit taking portions of soil A under cultiva¬
tion and that the capital invested in these new fields could return the
price of production, i.e., replace capital plus average profit.
Thus assume that conditions exist for the normal expansion of
capital on soil A. Is this sufficient? Can this capital then really
be invested? Or must the market-price rise to the point where
even the worst soil A yields rent? In other words, does the landown¬
er’s monopoly hinder the investment of capital which would not
be the case from the purely capitalist standpoint in the absence
of this monopoly? It follows from the way in which the question
itself is posed that if, e.g., additional capitals are invested in the

754 transformation of surplus-profit into ground-rent

old leaseholds, yielding the average profit at the given market-
price, but no rent, this circumstance in no way answers the ques¬
tion whether capital may now really be invested in soil A, which
also yields the average profits but no rent. But this is precisely
the question before us. The fact that additional investments
of capital not yielding any rent do not satisfy the demand is
proved by the necessity of taking new land of soil type A under
cultivation. Just two alternatives are possible if the additional
cultivation of soil A takes place only in so far as it yields rent,
that is, yields more than the price of production. Either the mar¬
ket-price must be such that even the last additional investments
of capital in the old leaseholds yield surplus-profit, whether
pocketed by the farmer or by the landlord. This rise in price and
this surplus-profit from the last additional investments of capi¬
tal would then result from the fact that soil A cannot be culti¬
vated without yielding rent. For if the price of production were
sufficient for cultivation to take place, merely yielding average
profit, the price would not have risen so high, and competition
from new plots would have been felt as soon as they just yielded
this price of production. Competing with the additional invest¬
ments in old leaseholds not yielding any rent would then be in¬
vestments in soil A, which likewise do not yield any rent.— Or,
the last investments in the old leaseholds do not yield any rent,
but nevertheless the market-price has risen sufficiently to make
it possible for soil A to be taken under cultivation and to yield
rent. In this case, the additional investment of capital not yield¬
ing any rent was only possible because soil A cannot be cultivat¬
ed until the market-price permits it to pay rent. Without this
condition, its cultivation would have already begun at a lower
price level; and those later investments of capital in the old
leaseholds, which require the high market-price in order to yield
the usual profit without rent, could not have taken place. At the
high market-price, it is true, they yield only the average profit. At
a lower market-price, which would have become the regulating price
of production from the time soil A came under cultivation, they
would thus not have yielded this average profit, i.e., the invest¬
ments would thus not have taken place at all under such condi¬
tions. In this way, the rent from soil A would indeed constitute
differential rent compared with the investments in the old
leaseholds not yielding any rent. But that such differential rent is
formed on the land areas of A is but a consequence of the fact that
the latter are not at all available to cultivation, unless they yield
rent; i.e., that the necessity for this rent exists, which, in itself,

ABSOLUTE GROUND-RENT

755

is not determined by any differences in soil types, and which con¬
stitutes the barrier to possible investment of additional capitals
in the old leaseholds. In either case, the rent from soil A would
not be simply a consequence of the rise in grain prices, but, con¬
versely, the fact that the worst soil must yield rent in order to
make its cultivation at all possible, would be the cause for the
rise in the grain price to the point where this condition may be
fulfilled.

Differential rent has the peculiarity that landed property here
merely intercepts the surplus-profit which would otherwise flow
into the pocket of the farmer, and which the latter may actually
pocket under certain circumstances during the period of his lease.
Landed property is here merely the cause for transferring a por¬
tion of the commodity-price which arises without the property
having anything to do with it (indeed, in consequence of the fact
that the price of production which regulates the market-price is
determined by competition) and which resolves itself into surplus-
profit — the cause for transferring this portion of the price from
one person to another, from the capitalist to the landlord. But
landed property is not the cause which creates this portion of the
price, or the rise in price upon which this portion of the price is
premised. On the other hand, if the worst soil A cannot be cultivat¬
ed— although its cultivation would yield the price of production
—until it produces something in excess of the price of production,
rent, then landed property is the creative cause of this rise in
price. Landed property itself has created rent. This fact is not
altered, if, as in the second case mentioned, the rent now paid
on soil A constitutes differential rent compared with the last
additional investment of capital in old leaseholds, which pay only
the price of production. For the circumstance that soil A cannot
be cultivated until the regulating market-price has risen high
enough to permit rent to be yielded from soil A — only this cir¬
cumstance is the basis here for the fact that the market-price
rises to a point which enables the last investments in the old
leaseholds to yield, indeed, only their price of production, but
a price of production which, at the same time, yields rent on soil
A. The fact that the latter has to pay rent at all is, in this case,
the cause for the differential rent between soil A and the last
investments in the old leaseholds.

When stating, in general, that soil A does not pay any rent —
assuming the price of grain is regulated by the price of produc¬
tion — we mean rent in the categorical sense of the word. If the
farmer pays “lease money ” which constitutes a deduction from the

756 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

normal wages of his labourers, or from his own normal average
profit, he does not pay rent, i.e., an independent component of
the price of his commodities distinct from wages and profit. We
have already indicated that this continually takes place in prac¬
tice. In so far as the wages of the agricultural labourers in a given
country are, in general, depressed below the normal average level
of wages, so that a deduction from wages, a part of the wages,
as a general rule enters into rent, this does not constitute an ex¬
ceptional case for the farmer cultivating the worst soil. In the
same price of production which makes cultivation of the worst
soil possible these low wages already form a constituent element,
and the sale of the product at the price of production does not
therefore enable the farmer cultivating this soil to pay any rent.
The landlord can also lease his land to some labourer, who may
be satisfied to pay to the former in the form of rent, all or the larg¬
est part of that which he realises in the selling price over and
above the wages. In all these cases, however, no real rent is paid
in spite of the fact that lease money i3 paid. But wherever condi¬
tions correspond to those under the capitalist mode of production,
rent and lease money must coincide. Yet it is precisely this nor¬
mal condition which must be analysed here.

Since even the cases considered above — where, under the cap¬
italist mode of production, investments of capital in the land
may actually take place without yielding rent — do not contrib¬
ute to the solution of our problem, so much less does reference
to colonial conditions. The criterion establishing a colony as a
colony — we are referring here only to true agricultural colonies —
is not merely the prevailing vast area of fertile land in a natural
state. It is rather the circumstance that this land has not been ap¬
propriated, has not been subjected to private ownership. Herein
lies the enormous difference, as regards the land, between old
countries and colonies: the legal or actual non-existence of landed
property, as Wakefield36 correctly remarks, and as Mirabeau pere,
the physiocrat, and other elder economists, had discovered long
before him. It is quite immaterial here whether the colonists sim¬
ply appropriate the land, or whether they actually pay to the state,
in the form of a nominal land price, a fee for a valid legal title
to the land. It is also immaterial that the colonists already set¬
tled there may be the legal owners of the land. In fact, landed prop¬
erty constitutes no limitation here to the investment of capital —

*4 Wakefield, England 'and America, London, 1833. Compare also Das
/Capital, Buch I, Kap. XXV [English edition: Ch. XXXIII, — Ed.].

ABSOLUTE GROUND-RENT

757

and also of labour without capital; the appropriation of some of
the land by the colonists already established there does not pre¬
vent the new-comers from employing their capital or their la¬
bour upon new land. Therefore, when it is necessary to investigate
the influence of landed property upon the prices of products of
the land and upon rent — in those cases where landed property re¬
stricts land as an investment sphere of capital — it is highly absurd
to speak of free bourgeois colonies where, in agriculture, neither
the capitalist mode of production exists, nor the form of landed
property corresponding to it — which, in fact, does not exist at all.
Ricardo, e.g., does so in his chapter on ground-rent. In the
preface he states that he intends to investigate the effect of the
appropriation of land upon the value of the products of the soil,
and directly thereafter he takes the colonies as an illustration,
whereby he assumes that the land exists in a relatively elementary
form and that its exploitation is not limited by the monopoly of
landed property.

The mere legal ownership of land does not create any ground-
rent for the owner. But it does, indeed, give him the power to with¬
draw his land from exploitation until economic conditions permit
him to utilise it in such a manner as to yield him a surplus, be it
used for actual agricultural or other production purposes, such as
buildings, etc. He cannot increase or decrease the absolute magni¬
tude of this sphere, but he can change the quantity of land
placed on the market. Hence, as Fourier already observed, it is a
characteristic fact that in all civilised countries a comparatively
appreciable portion of land always remains uncultivated.

Thus, assuming the demand requires that new land be taken
under cultivation, whose soil, let us say, is less fertile than that
hitherto cultivated — will the landlord lease it for nothing, just
because the market-price of the product of the land has risen
sufficiently to return to the farmer the price of production, and
thereby the usual profit, on his investment in this land? By no means.
The investment of capital must yield him rent. He does not lease
his land until he can be paid lease money for it. Therefore, the
market-price must rise to a point above the price of production,
i.e., to P+r, so that rent can be paid to the landlord. Since ac¬
cording to our assumption, landed property does not yield any¬
thing until it is leased, is economically valueless until then, a
small rise in the market-price above the price of production suffices
to bring the new land of poorest quality on the market.

The following question now arises: Does it follow from the fact
that the worst soil yields ground-rent which cannot be derived

25—2494

758 transformation of surplus-profit into ground-rent

from any difference in fertility that the price of the product of the
land is necessarily a monopoly price in the usual sense, or a price
into which the rent enters like a tax, with the sole distinction that
the landlord levies the tax instead of the state? It goes without
saying that this tax has its specific economic limits. It is limited
by additional investments of capital in the old leaseholds, by
competition from products of the land coming from abroad —
assuming their import is unrestricted — by competition among the
landlords themselves, and finally by the needs of the consumers
and their ability to pay. But this is not the question here. The
point is whether the rent paid on the worst soil enters into the
price of the products of this soil — which price regulates the gener¬
al market-price according to our assumption — in the same way
as a tax placed on a commodity enters into its price, i.e., as an
element that is independent of the value of the commodity.

This, by no means, necessarily follows, and the contention that
it does has been made only because the distinction between the
value of commodities and their price of production has heretofore
not been understood. We have seen that the price of production of
a commodity is not at all identical with its value, although the
prices of production of commodities, considered in their totality,
are regulated only by their total value, and although the move¬
ment of production prices of various kinds of commodities, all
other circumstances being equal, is determined exclusively by
the movement of their values. It has been shown that the price of
production of a commodity may lie above or below its value, and
coincides with its value only by way of exception. Hence, the fact
that products of the land are sold above their price of production
does not at all prove that they are sold above their value; just as
the fact that products of -industry, on the average, are sold at their
price of production does not prove that they are sold at their value.
It is possible for agricultural products to be sold above their price
of production and below their value, while, on the other hand,
many industrial products yield the price of production only be¬
cause they are sold above their value.

The relation of the price of production of a commodity to its
value is determined solely by the ratio of the variable part of the
capital with which the commodity is produced to its constant
part, or by the organic composition of the capital producing it. If
the composition of the capital in a given sphere of production is
lower than that of the average social capital, i.e., if its variable
portion, which is used for wages, is larger in its relation to the con¬
stant portion, used for the material conditions of labour, than is

ABSOLUTE GROUND-RENT

759

the case in the average social capital, then the value of its product
must lie above the price of production. In other words, because
such capital employs more living labour, it produces more sur¬
plus-value, and therefore more profit, assuming equal exploita¬
tion of labour, than an equally large aliquot portion of the social
average capital. The value of its product, therefore, is above the
price of production, since this price of production is equal to cap¬
ital replacement plus average profit, and the average profit is
lower than the profit produced in this commodity. The surplus-
value produced by the average social capital is less than the sur¬
plus-value produced by a capital of this lower composition. The
opposite is the case when the capital invested in a certain sphere
of productien is of a higher composition than the social average
capital. The value of commodities produced by it lies below their
price of production, which is generally the case with products of
the most developed industries.

If the capital in a certain sphere of production is of & lower com¬
position than the average social capital, then this is, in the first
place, merely another way of saying that the productivity of the
social labour in this particular sphere of production is below the
average; for the level of productivity attained is manifested in
the relative preponderance of constant over variable capital, or
in the continual decrease — for the given capital — of the portion
used for wages. On the other hand, if the capital in a certain
sphere of production is of a higher composition, then this reflects
a development of productiveness that is above the average.

Leaving aside actual works of art, whose consideration by their
very nature is excluded from our discussion, it is self-evident, more¬
over, that different spheres of production require different pro¬
portions of constant and variable capital in accordance with their
specific technical features, and that living labour must play a
bigger role in some, and smaller in others. For instance, in the ex¬
tractive industries, which must be clearly distinguished from agri¬
culture, raw material as an element of constant capital is wholly
absent, and even auxiliary material rarely plays an important role.
In the mining industry, however, the other part of-constant capi¬
tal, i.e., fixed capital, plays an important role. Nevertheless, here
too, progress may be measured by the relative increase of constant
capital in relation to variable capital.

If the composition of capital in agriculture proper is lower than
that of the average social capital, then, prima facie, this expresses
the fact that in countries with developed production agriculture
has not progressed to the same extent as the processing industries.

760 TRANSFORMATION OF SURPLUS-PRO"FIT INTO GROUND-RENT

Such a fact could be explained — aside from all other circum¬
stances, including in part decisive economic ones — by the earlier
and more rapid development of the mechanical sciences, and
in particular their application compared with the later and in part
quite recent development of chemistry, geology and physiology,
and again, in particular, their application to agriculture. Inci¬
dentally, it is an indubitable and long-knoym fact38 that the prog¬
ress of agriculture itself is constantly expressed by a relative growth
of constant capital as compared with variable capital. Whether
the composition of agricultural capital is lower than that of the
average social capital in a specific country where capitalist produc¬
tion prevails, for instance England, is a question which can only
be decided statistically, and for our purposes it is superfluous to
go into it in detail. In any case, it is theoretically established that
the value of agricultural products can be higher than their price of
production only on this assumption. In other words, a capital of
a certain size in agriculture produces more surplus-value, or what
amounts to the same, sets in motion and commands more surplus-
labour (and with it employs more living labour generally) than a
capital of the same size of average social composition.

This assumption, then, suffices for that form of rent which we
are analysing here, and which can obtain only so- long as this as¬
sumption holds good. Wherever this assumption no longer holds,
the corresponding form of rent likewise no longer holds.

However, the mere existence of an excess in the value of agri¬
cultural products over their price of production would not in
itself suffice to explain the existence of a ground-rent which is
independent of differences in fertility of various soil types and in
successive investments of capital on the same land — a rent, in
short, which is to be clearly distinguished in concept from differ¬
ential rent and which we may therefore call absolute rent. Quite a
number of manufactured products are characterised by the fact
that their value is higher than their price of production, without
thereby yielding any excess above the average profit, or a surplus-
profit, which could be converted into rent. Conversely, the exist¬
ence and concept of price of production and general rate of profit,
which it implies, rest upon the fact that individual commodities
are not sold at their value. Prices of production arise from an

*• See Dombasle [Annates agricoles de Rooille, ou Melanges d' agriculture,
d’ economic rurale et de legislation agricole, Paris, 1824-37 . —Ed. ] and
R. Jones [An Essay on the Distribution of Wealth, and on the Sources
of Taxation, Part I, Rent, London^831, p. 227. — Ed.].

ABSOLUTE GROUND-RENT

761

equalisation of the values of commodities. After replacing the
respective capital-values used up in the various spheres of produc¬
tion, this distributes the entire surplus-value, not in proportion
to the amount produced in the individual spheres of production
and thus incorporated in their commodities, but in proportion to
the magnitude of advanced capitals. Only in this manner do average
profit and price of production arise, whose characteristic element
the former is. It is the perpetual tendency of capitals to bring
about through competition this equalisation in the distribution of
surplus-value produced by the total capital, and to overcome all
obstacles to this equalisation. Hence it is their tendency to tol¬
erate only such surplus-profits as arise, under all circumstances,
not from the difference between the values and prices of production
of commodities, but rather from the difference between the gener¬
al price of production governing the market and the individual
prices of production differing from it; surplus-profits which obtain
within a certain sphere of production, therefore, and not between
two different spheres, and thus do not affect the general prices of
production of the various spheres, i.e., the general rate of profit,
but rather presuppose the transformation of values into prices
of production and a general rate of profit. This supposition rests,
however, as previously discussed, upon the constantly changing
proportional distribution of the total social capital among the var¬
ious spheres of production, upon the perpetual inflow and outflow
of capitals, upon their transferability from one sphere to another,
in short, upon their free movement between the various spheres
of production, which represent so many available fields of invest¬
ment for the independent components of the total social capital.
The premise in this case is that no barrier, or just an accidental
and temporary barrier, interferes with the competition of capitals
— for instance, in a sphere of production, in which the commodity-
values are higher than the prices of production, or where the sur¬
plus-value produced exceeds the average profit — to reduce the value
to the price of production and thereby proportionally distrib¬
ute the excess surplus-value of this sphere of production among
all spheres exploited by capital. But if the reverse occurs, if cap¬
ital meets an alien force which it can but partially, or not at all,
overcome, and which limits its investment in certain spheres, admit¬
ting it only under conditions which wholly or partly exclude that
general equalisation of surplus-value to an average profit, then it
is evident that the excess of the value of commodities in such
spheres of production over their price of production would give
rise to a surplus-profit, which could be converted into rent and as

762 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

such made independent with respect to profit. Such an alien force
and barrier are presented by landed property, when confronting
capital in its endeavour to invest in land; such a force is the land¬
lord vis-a-vis the capitalist.

Landed property is here the barrier which does not permit any
new investment of capital in hitherto uncultivated or unrented
land without levying a tax, or in other words, without demanding
a rent, although the land to be newly brought under cultivation
may belong to a category which does not yield any differential
rent and which, were it not for landed property, could have been
cultivated even at a small increase in market-price, so that the
regulating market-price would have netted to the cultivator of this
worst soil solely his price of production. But owing to the barrier
raised by landed property, the market-price must rise to a level
at which the land can yield a surplus over the price of production,
i.e., yield a rent. However, since the value of the commodities
produced by agricultural capital is higher than their price of pro¬
duction, according to our assumption, this rent (save for one case
which we shall discuss forthwith) forms the excess of value over
the price of production, or a part of it. Whether the rent equals
the entire difference between the value and price of production, or
only a greater or lesser part of it, will depend wholly on the rela¬
tion between supply and demand and on the area of land newly
taken under cultivation. So long as the rent does not equal the ex¬
cess of the value of agricultural products over their price of produc¬
tion, a portion of this excess will always enter into the general
equalisation and proportional distribution of all surplus-value
among the various individual capitals. As soon as the rent does
equal the excess of the value over the price of production, this
entire portion of surplus-value over and above the average profit
will be withdrawn from this equalisation. But whether this abso¬
lute rent equals the whole excess of value over the price of pro¬
duction, or just a part of it, the agricultural products will always
be sold at a monopoly price, not because their price exceeds their
value, but because it equals their value, or because their price is
lower than their value but higher than their price of production.
Their monopoly would consist in the fact that, unlike other prod¬
ucts of industry whose value is higher than the general price of
production, they are not levelled out to the price of production.
Since one portion of the value, as well as of price of production,
is an actually given constant, namely the cost-price, representing
the capital=k used up in production, their difference consists in
the other, the variable portion, the surplus-value, which equals

ABSOLUTE GROUND-RENT

763

p, the profit, in the price of production, i.e., equals the total sur¬
plus-value calculated on the social capital and on every individu¬
al capital as an aliquot part of the social capital; but which in the
value of commodities equals the actual surplus-value created by
this particular capital, and forms an integral part of the commodity-
values produced by this capital. If the value of commodities is
higher than their price of production, then the price of produc-
tion=k+p, and the value=k+p+d, so that p+d=the surplus-
value contained therein. The difference between the value and the
price of production, therefore, =d, the excess of surplus-value
created by this capital over the surplus-value allocated to it
through the general rate of profit. It follows from this that the
price of agricultural products may lie higher than their price of
production, without reaching their value. It follows, furthermore,
that a permanent increase in the price of agricultural products may
take place up to a certain point, before their price reaches their
value. It follows likewise that the excess in the value of agricultural
products over their price of production can become a determining
element of their general market-price solely as a consequence of
the monopoly in landed property. It follows, finally, that in this
case the increase in the price of the product is not the cause of rent,
but rather that rent is the cause of the increase in the price of the
product. If the price of the product from a unit area of the worst
soil=P+r, then all differential rents will rise by corresponding
multiples of r, since the assumption is that P+r becomes the regu¬
lating market-price.

If the average composition of the non-agricultural social cap¬
ital were=85c-|-15v, and the rate of surplus-value ==100%, then
the price of production would=115. If the composition of the agri¬
cultural capital were=75c+25v and the rate of surplus-value
were the same, then the value of the agricultural product and the
regulating market-price would = 125. If the agricultural and the
non-agricultural product should be equalised to the same average
price (we assume for the saks of brevity the total capital in both
lines of production to be equal), then the total surplus-value would
=40, or 20%, on the 200 of capital. The product of the one as
well as the other would be sold at 120. In an equalisation into
prices of production, the average market-prices of the non-agricul¬
tural product would thus lie above, and those of the agricultural
product below, their value. If the agricultural products were sold
at their full value, they would be higher by 5, and the industrial
products lower by 5, than they are in the equalisation. If market
conditions do not permit the sale of the agricultural products at

764 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

their full value, to the full surplus above the price of production,
then the effect lies between the two extremes; the industrial prod¬
ucts are sold somewhat above their value, and the agricultural
products somewhat above their price of production.

Although landed property may drive the price of agricultural
produce above its price of production, it does not depend on this,
but rather on the general state of the market, to what degree mar¬
ket-price exceeds the price of production and approaches the value,
and to what extent therefore the surplus-value created in agricul¬
ture over and above the given average profit shall either be trans¬
formed into rent or enter into the general equalisation of the surplus-
value to average profit. At any rate this absolute rent arising out
of the excess of value over the price of production is but a portion
of the agricultural surplus-value, a conversion of this surplus-
value into rent, its being filched by the landlord; just as the differ¬
ential rent arises out of the conversion of surplus-profit into rent,
its being filched by the landlord under a generally regulating price
of production. These two forms of rent are the only normal ones.
Apart from them the rent can be based only upon an actual (no¬
nopoly price, which is determined neither by price of production
nor by value of commodities, but by the buyers’ needs and ability
to pay. Its analysis belongs under the theory of competition, where
the actual movement of market-prices is considered.

If all the land suitable for agriculture in a certain country were
leased — assuming the capitalist mode of production and normal
conditions to be general — there would not be any land not paying
rent; but there might be some capitals, certain parts of capitals
invested in land, that might not yield any rent. For as soon as
the land has been rented, landed property ceases to act as an abso¬
lute barrier against the investment of necessary capital. Still, it
continues to act as a relative barrier even after that, in so far as
the reversion to the landlord of the capital incorporated in the
land circumscribes the activity of the tenant within very definite
limits. Only in this case all rent would be transformed into differen¬
tial rent, although this would not be a differential rent determined
by any difference in soil fertility, but rather by the difference
between the surplus-profits arising from the last investments of
capital in a particular soil type and the rent paid for the lease of
the worst quality land. Landed property acts as an absolute barrier
only to the extent that the landlord exacts a tribute for making
land at all accessible to the investment of capital. When such access
has been gained, he can no longer set any absolute limits to the size
of any investment of capital in a given plot of land. In general,

ABSOLUTE GROUND-RENT

765

housiog construction meets a barrier in the ownership by a third
party of the land upon which the houses are to be built. But, once
this land has been leased for the purpose of housing construction,
it depends upon the tenant whether he will build a large or a small
house.

If the average composition of agricultural capital were equal
to, or higher than, that of the average social capital, then absolute
rent — again in the sense just described— would disappear; i.e.,
rent which differs equally from differential rent as well as that
based upon an actual monopoly price. The value of agricultural
produce, then, would not lie above its price of production, and
the agricultural capital would not set any more labour in motion,
and therefore would also not realise any more surplus-labour than
the non-agricultural capital. The same would take place, were
the composition of agricultural capital to become equal to that
of the average social capital with the progress of civilisation.

It seems to be a contradiction, at first glance, to assume that,
on the one hand, the composition of agricultural capital rises, in
other words, that its constant component increases with respect
to its variable, and, on the other hand, that the price of the agri¬
cultural product should rise high enough to permit rent to be
yielded by new and worse soil than that previously cultivated, a
rent which in this case could originate only from an excess of
market-price over the value and price of production, in short, a rent
derived solely from a monopoly price of the product.

It is necessary to make a distinction here.

In the first place, it was noted in considering the manner in
which rate of profit is formed, that capitals, which have the same
composition technologically speaking, i.e., which set equiva¬
lent amounts of labour in motion relative to machinery and raw
materials, may nonetheless have different compositions owing
to different values of the constant portions of these capitals. The
raw materials or machinery may be dearer in one case than in an¬
other. For the same quantity of labour to be set in motion (and this
would be required, according to our assumption, to work up the
same mass of raw materials), a larger capital would have to be
advanced in the one case than in the other, since the same amount
of labour cannot be set in motion with, say, a capital of 100 if the
cost of raw material, which must be covered out of the 100, is 40
in one case and 20 in another. But it would become immediately
evident that these two capitals are of the same technical compo¬
sition, as soon as the price of the dearer raw material fell to the
level of the cheaper one. The value ratio between constant and

766 transformation of surplus profit into ground-rent

variable capital would have become the same in that case, although
no change had taken place in the technical proportions between
the living labour and the mass and nature of the conditions of
labour employed by this capital. On the other hand, a capital of
lower organic composition could assume the appearance of being
in the same class with one of a higher organic composition, mere¬
ly from a rise in the value of its constant portions, solely from the
viewpoint of its value-composition. Suppose one capital=60c-f-
-+-40*, because it employs much machinery and raw material com¬
pared to living labour-power, and another capital=40c+60*,
because it employs much living labour (60%), little machinery
(e.g., 10%) and compared to labour-power less and cheaper raw
material (e.g., 30%). Then a simple rise in the value of raw and
auxiliary materials from 30 to 80 could equalise the composition,
so that now the second capital would consist of 80 raw material
and 60 labour-power for 10 in machines, or 90c+60v, which, in
percentages, would also = 60c+40v, with no change having
taken place in the technical composition. In other words, capitals
of equal organic composition may be of different value-composi¬
tion, and capitals with identical percentages of value-composi¬
tion may show varying degrees of organic composition and thus
express different stages in the development of the social productivi¬
ty of labour. The mere circumstance, then, that agricultural capi¬
tal might be on the general level of value-composition, would
not prove that the social productivity of labour is equally high-
developed in it. It would merely show that its own product, which
again forms a part of its conditions of production, is dearer, or
that auxiliary materials, such as fertiliser, which used to be close
by, must now be brought from afar, etc.

But aside from this, the peculiar nature of agriculture must be
taken into account.

Suppose labour-saving machinery, chemical aids, etc., are more
extensively used in agriculture, and that therefore constant capi¬
tal increases technically, not merely in value, but also in mass,
as compared with the mass of employed labour-power, then in agri¬
culture (as in mining) it is not only a matter of the social, but also
of the natural, productivity of labour which depends on the natural
conditions of labour. It is possible for the increase of social
productivity in agriculture to barely compensate, or not even
compensate, for the decrease in natural power — this compensa¬
tion will nevertheless be effective only for a short time — so that
despite technical development there, no cheapening of the product
occurs, but only a still greater increase in price is averted. It is also

ABSOLUTE GROUND-RENT

767

possible that the absolute mass of products decreases with rising
grain prices, while the relative surplus-product increases; namely,
in the case of a relative increase in constant capital which consists
chiefly of machinery or animals requiring only replacement of
wear and tear, and with a corresponding decrease in variable capi¬
tal which is expended in wages requiring constant replacement in
full out of the product.

Moreover, it is also possible that with progress in agriculture
only a moderate rise in market-price above the average is neces¬
sary, in order to cultivate and draw a rent from poorer soil, which
would have required a greater rise in market-price if technical
aids were less developed.

The fact that in larger-scale cattle-raising, for example, the mass
of employed labour-power is very small compared with constant
capital as represented in cattle itself, could be taken to refute the
assertion that more labour-power, on a percentage basis, is set in
motion by agricultural capital than by the average social capital
outside of agriculture. But it should be noted here that we have
taken as determining for rent analysis that portion of agricultur¬
al capital which produces the principal plant foodstuffs providing
the chief means of subsistence among civilised nations. Adam
Smith— and this is one of his merits— has already demonstrated
that a quite different determination of prices is to be observed
in cattle-raising, and, for that matter, generally for capitals in¬
vested in land which are not engaged in raising the principal
means of subsistence, e.g., grain. Namely in that case the price is
determined in such a way that the price of the product of the land —
which is used for cattle-raising, say as an artificial pasture, but
which could just as easily have been transformed into cornfields
of a certain quality — must rise high enough to produce the same
rent as on arable land of the same quality. In other words, the rent
of cornfields becomes a determining element in the price of cattle,
and for this reason Ramsay has justly remarked that the price of
cattle is in this manner artificially raised by the rent, by the eco¬
nomic expression of landed property, in short, through landed
property.*

“By the extension of cultivation the unimproved wilds become
insufficient to supply the demand for butcher’s meat. A great
part of the cultivated lands must be employed in rearing and fat¬
tening cattlo, of which the price, therefore, must be sufficient to

* G. Ramsay, An Essay on the Distribution of Wealth, Edinburgh, 1836,
pp. 278-79. — Ed.

768 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

pay, not only the labour necessary for tending them, but the rent
which the landlord and the profit which the farmer could have
drawn from such land, employed in tillage. The cattle bred upon
the most uncultivated moors, when brought to the same market,
are, in proportion to their weight or goodness, sold at the same price
as those which are reared upon the most improved land. The pro¬
prietors of those moors profit by it, and raise the rent of their land
in proportion to the price of their cattle.” (Adam Smith, Book I,
Ch. XI, Part 1.) In this case, likewise, as distinct from grain-rent,
the differential rent is in favour of the worst soil.

Absolute rent explains some phenomena, which, at first sight,
seem to make merely a monopoly price responsible for the rent.
To go on with Adam Smith’s example, take the owner of some Nor¬
wegian forest, for instance, which exists independent of human ac¬
tivity, i.o., it is not a product of silviculture. If the proprietor of
this forest receives a rent from a capitalist who has the timber
felled, perhaps in consequence of a demand from England, or if
this owner has the timber felled himself acting in the capacity of
capitalist, then a greater or smaller amount of rent will accrue to
him in timber, apart from the profit on invested capital. This
appears to be a pure monopoly charge derived from a pure product
of Nature. But, as a matter of fact, the capital here consists al¬
most exclusively of a variable component expended in labour, and
thus sets more surplus-labour in motion than another capital of tho
same size. The value of the timber, then, contains a greater sur¬
plus of unpaid labour, or of surplus-value, than that of a product
of a capital of a higher organic composition. For this reason the
average profit can be derived from this timber, and a considerable
surplus in the form of rent can fall to the share of the owner of the
forest. Conversely, it may be assumed that, owing to the ease with
which timber-felling may be extended, in other words, its produc¬
tion rapidly increased, the demand must rise very considerably
for the price of timber to equal its value, and thereby for the en¬
tire surplus of unpaid labour (over and above that portion which
falls to the capitalist as average profit) to accrue to the owner in
the form of rent.

We have assumed that the land newly brought under culti¬
vation is of still inferior quality than the worst previously
cultivated. If it is better, it yields a differential rent. But here we
are analysing precisely the case wherein rent does not appear as a
differential rent. There are only two cases possible: The newly
cultivated soil is either inferior to, or just as good as the previously
cultivated soil. If inferior, then the matter has already been

ABSOLUTE GROUND-RENT

769

analysed. It remains only to analyse the case in which it is just as
good.

As already developed in our analysis of differential rent, the
progress of cultivation may just as well bring equally good, or
even better soils under the plough as worse soil.

First. Because in differential rent (or any rent in general, since
even in the case of non-differential rent the question always
arises whether, on the one hand, the soil fertility in general, and,
on the other hand, its location, admit of its cultivation at the reg¬
ulating market-price so as to yield a profit and rent) two condi¬
tions work in opposing directions, now cancelling one another,
now alternately exerting the determining influence. The rise in
market-price — provided the cost-price of cultivation has not
fallen, i.e., no technical progress has given a new impetus to fur¬
ther cultivation — may bring under cultivation more fertile soil
formerly excluded from competition by virtue of its location. Or
it may so enhance the advantage of the location of the inferior soil
that its lesser fertility is counterbalanced by it. Or, without any
rise in market-price the location may bring better soils into com¬
petition through improvement in means of communication, as
can be observed on a large scale in the prairie States of North Amer¬
ica. In countries of older civilisation the same also takes place
constantly if not to the same extent as in the colonies, where, as
Wakefield correctly observes, location is decisive.* To sum up,
then, the contradictory influences of location and fertility, and
the variableness of the location factor, which is continually coun¬
terbalanced and perpetually passes through progressive changes
tending towards equalisation, alternately carry equally good, better
or worse land areas into new competition with the older ones
under cultivation.

Secondly. With the development of natural science and agrono¬
my the soil fertility is also changed by changing the means
through which the soil constituents may be rendered immediately
serviceable. In this way, light soil types in France and in the east¬
ern counties of England, which were regarded as inferior at one
time, have recently risen to first place. (See Passy.**) On the other
hand, soil considered inferior not for bad chemical composition
but for certain mechanical and physical obstacles that hindered

* [E. Wakefield] England and America. A Comparison of the Social
and Political State of both Nations, Vol. 1, London, 1833, pp. 214-15. — Ed.

** H. Passy, Rente da sol. in: Dictionnaire de l’economie politique,
Tome II, Paris, 1854, p. 515. — Ed.

770 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

its cultivation, is converted into good land as soon as means to
overcome these obstacles have been discovered.

Thirdly. In all ancient civilisations, old historical and tradi¬
tional relations, for instance, in the form of state-owned lands,
communal lands, etc., have purely arbitrarily withheld from cul¬
tivation large tracts of land, which only return to it little by lit¬
tle. The succession in which they are brought under cultivation
depends neither upon their good quality nor siting, but upon whol¬
ly external circumstances. In tracing the history of English commu¬
nal lands turned successively into private property through the
Enclosure Bills and brought under the plough, nothing would
be more ridiculous than the fantastic idea that a modern agricul¬
tural chemist, such as Liebig, had indicated the selection of land
in this succession, designating certain fields for cultivation owing
to chemical properties and excluding others. What was more
decisive in this case was the opportunity which makes the thief;
the more or less plausible legalistic subterfuges of the big landlords
to justify their appropriation.

Fourthly. Apart from the fact that the stage of development
reached at any time by the population and capital increase sets
certain limits, even though elastic, to the extension of cultivation,
and apart from chance effects which temporarily influence the
market-price — such as a series of good or bad seasons — the ex¬
tension of agriculture over a larger area depends on the over-all
state of the capital market and business conditions in a country.
In periods of stringency it will not suffice for uncultivated soil to
yield the tenant an average profit — no matter whether he pays
any rent or not — in order that additional capital be invested in
agriculture. In other periods when there is a plethora of capital,
it will pour into agriculture even without a rise in market-price
if only other normal conditions are present. Better soil than hith¬
erto cultivated would in fact be excluded from competition solely
on the basis of unfavourable location, or if hitherto insurmount¬
able obstacles to its employment existed, or through chance. For
this reason we should only concern ourselves with soils which are
just as good as those last cultivated. However, there still exists
the difference in cost of clearing for cultivation between the new
soil and the one last cultivated. And it depends upon the level of
market-prices and credit conditions whether this will be undertak¬
en or not. As soon as this soil then actually enters into competi¬
tion, the market-price will fall once more to its former level,
assuming other conditions to be equal, aDd the new soil will then
yield the same rent as the corresponding old soil. The assumption

ABSOLUTE GROUND-RENT

771

that it does not yield any rent is proved by its advocates by assum¬
ing precisely what they are called upon to prove, namely that the
last soil did not yield any rent. One might prove in the same
manner that houses which were the last built do not yield any rent
for the building outside of house-rent proper, even though they
are leased. In fact, however, they do yield rent even before yield¬
ing any house-rent, when they frequently remain vacant for a long
period. Just as successive investments of capital in a certain
piece of land may bring a proportional surplus and thereby the
same rent as the first investment, so fields of the same quality as
those last cultivated may bring the same proceeds for the same
cost. Otherwise it would be altogether inexplicable how fields of
the same quality are ever brought successively under cultivation;
it seems that either it would be necessary to take all together, or
rather not a single one of them, in order not to bring all the remain¬
ing ones into competition. The landlord is always ready to draw
a rent, i.e., to receive something for nothing. But capital requires
certain conditions to fulfil his wish. Competition between pieces
of land does not, therefore, depend upon the landlord desiring
them to compete, but upon the capital existing which geeks to
compete with other capitals in the new fields.

To the extent that the agricultural rent proper is purely a mo¬
nopoly price, the latter can only be small, just as the absolute
rent can only be small here under normal conditions whatever
the excess of the product’s value over its price of production. The
essence of absolute rent, therefore, consists in this: Given the same
rate of surplus-value, or degree of labour exploitation, equally
large capitals in various spheres of production produce different
amounts of surplus-value, in accordance with their varying aver¬
age composition. In industry these various masses of surplus-value
are equalised into an average profit and distributed uniformly
among the individual capitals as aliquot parts of the social cap¬
ital. Landed property hinders such an equalisation among capi¬
tals invested in land, whenever production requires land for
either agriculture or extraction of raw materials, and takes hold of
a portion of the surplus-value, which would otherwise take part in
equalising to the general rate of profit. The rent, then, forms a
portion of the value, or, more specifically, surplus-value, of com¬
modities, and instead of falling'into the lap of the capitalists, who
have extracted it from their labourers, it falls to the share of the
landlords, who extract it from the capitalists. It is hereby assumed
that the agricultural capital sets more labour in motion than
an equally large portion of non-agricultural capital. How far the

772 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

discrepancy goes, or whether it exists at all, depends upon the
relative development of agriculture as compared with industry It
is in the nature of the case that this difference must decrease with
the progress of agriculture, unless the proportionate decrease of
variable as compared with constant capital is still greater in
the case of industrial than in the case of agricultural capital.

This absolute rent plays an even more important role in the ex¬
tractive industry proper, where one element of constant capital,
raw material, is wholly lacking and where, excluding those lines
in which capital consisting of machinery and other fixed capital
is very considerable, by far the lowest composition of capital pre¬
vails. Precisely here, where the rent appears entirely attributable
to a monopoly price, unusually favourable market conditions are
necessary for commodities to be sold at their value, or for rent to
equal the entire excess of a commodity’s surplus-value over its
price of production. This applies, for instance, to rent from fish¬
eries, stone quarries, natural forests, etc.37

37 Ricardo deals with this very superficially. See the passage directed
against Adam Smith concerning forest rent in Norway, at the very beginning
ot Chapter II, in Principles.

CHAPTER XLVI

BUILDING SITE RENT. RENT IN MINING.

PRICE OF LAND

Wherever rent exists at all, differential rent appears at all times,
and is governed by the same laws, as agricultural differential
rent. Wherever natural forces can be monopolised and guarantee
a surplus-profit to the industrial capitalist using them, be it
waterfalls, rich mines, waters teeming with fish, or a favourably
located building site, there the person who by virtue of title to
a portion of the globe has become the proprietor of these natural
objects will wrest this surplus-profit from functioning capital
in the form of rent. Adam Smith has set forth, as concerns land
for building purposes, that the basis of its rent, like that of all
non-agricultural land, is regulated by agricultural rent proper
(Book I, Ch. XI, 2 and 3). This rent is distinguished, in the first
place, by the preponderant influence exerted here by location upon
differential rent (very significant, e.g., in vineyards and building
sites in large cities); secondly, by the palpable and complete pas¬
siveness of the owner, whose sole activity consists (especially in
mines) in exploiting the progress of social development, toward
which he contributes nothing and for which he risks nothing, unlike
the industrial capitalist; and finally by the prevalence of monopoly
prices in many cases, particularly through the most shameless
exploitation of poverty (for poverty is more lucrative for house-
rent than the mines of Potosi ever were for Spain38), and the mon¬
strous power wielded by landed property, when united hand in
hand with industrial capital, enables it to be used against labour¬
ers engaged in their wage struggle as a means of practically expell¬
ing them from the earth as a dwelling-place.39 One part of society

38 Laing [National Distress', its Causes and Remedies, London, 1844.
— Ed.], Newman [ Lectures on Political Economy, London, 1857. — Ed. ].

39 Crowlington Strike. Engels, Lage der arbeitenden Klatse in England,
S. 307.

774 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

thus exacts tribute from another for the permission to inhabit the
earth, as landed property in general assigns the landlord the privi¬
lege of exploiting the terrestrial body, the bowels of the earth, the
air, and thereby the maintenance and development of life. Not only
the population increase and with it the growing demand for
shelter, but also the development of fixed capital, which is either
incorporated in land, or takes root in it and is based upon it, such
as all industrial buildings, railways, warehouses, factory buildings,
docks, etc., necessarily increase the building rent. A confusion
of house-rent, in so far as it constitutes interest and amortisation
on capital invested in a house, and rent for the mere land, is not
possible in this case, even with all the goodwill of a person like
Carey, particularly when landlord and building speculator are dif¬
ferent persons, as is true in England. Two elements should be con¬
sidered here: on the one hand, the exploitation of the earth for the
purpose of reproduction or extraction; on the other hand, the space
required as an element of all production and all human activity
And property in land demands its tribute in both senses. The de¬
mand for building sites raises the value of land as space and foun¬
dation, while thereby the demand for elements of the terrestrial
body serving as building material grows simultaneously.40

That it is the ground-rent, and not the house, which forms the
actual object of building speculation in rapidly growing cities,
especially where construction is carried on as an industry, e.g.,
in London, has already been illustrated in Book II, Chapter XII,*
in the testimony of a big building speculator in London, Edward
Capps, given before the Select Committee on Bank Acts of 1857.
He stated there, No. 5435: “I think a man who wishes to rise in
the world can hardly expect to rise by following out a fair trade
... it is necessary for him to add speculative building to it, and that
must be done not on a small scale; ... for the builder makes very
little profit out of the buildings themselves; he makes the princi¬
pal part of the profit out of the improved ground-rents. Perhaps
he takes a piece of ground, and agrees to give £300 a year for it;
by laying it out with care, and putting certain descriptions of build¬
ings upon it, he may succeed in making £400 or £450 a year out
of it, and his profit would be the increased ground-rent of £100
or £150 a year, rather than the profit of the buildings which ...,

40 “The paving of the streets of London has enabled the owners of some
barren rocks on the coast of Scotland to draw a rent from what never afford¬
ed any before.” Adam Smith \An Inquiry into the Nature and Causes of the
Wealth of Nations], Book I, Chapter XI, 2.

•English edition: Vol. II, pp. 233-34. — Ed.

BUILDING SITE AND MINING RENT. PRICE OF LAND

775

in many instances, he scarcely looks at at all. ” And parentheti¬
cally it should not be forgotten that after the lapse of the lease,
generally at the end of 99 years, the land with all its buildings and
its ground-rent — usually increased in the interim twice or three
times, reverts from the building speculator or his legal successor
to the original last landlord.

Mining rent proper is determined in the same way as agricul¬
tural rent. “There are some mines, of which the produce is barely
sufficient to pay the labour and replace, together with its ordinary
profits, the stock employed in working them. They afford some
profit to the undertaker of the work, but no rent to the land¬
lord. They can be wrought advantageously by nobody but the
landlord, who, being himself the undertaker of the work, gets
the ordinary profit of the capital which he employs in it. Many
coalmines in Scotland are wrought in this manner, and can be
wrought in no other. The landlord will allow nobody else to work
them without paying some rent, and nobody can afford to pay
any.” (Adam Smith, Book I, Ch. XI, 2.)

It must be distinguished, whether the rent springs from a mo¬
nopoly price, because a monopoly price of the product or the land
exists independently of it, or whether the products are sold at a
monopoly price, because a rent exists. When we refer to a monopo¬
ly price, we mean in general a price determined only by the pur¬
chasers’ eagerness to buy and ability to pay, independent of the
price determined by the general price of production, as well as by
the value of the products. A vineyard producing wine of very ex¬
traordinary quality which can be produced only in relatively
small quantities yields a monopoly price. The wine-grower would
realise a considerable surplus-profit from this monopoly price,
whose excess over the value of the product would be wholly deter¬
mined by the means and fondness of the discriminating wine-
drinker. This surplus-profit, which accrues from a monopoly price,
is converted into rent and in this form falls into the lap of the land¬
lord, thanks to his title to this piece of the globe endowed with
singular properties. Here, then, the monopoly price creates the
rent. On the other hand, the rent would create a monopoly price
if grain were sold not merely above its price of production, but
also above its value, owing to the limits set by landed property
to the investment of capital in uncultivated land without payment
of rent. That it is only the title of a number of persons to the pos¬
session of the globe enabling them to appropriate to themselves as
tribute a portion of the surplus-labour of society and furthermore
to a constantly increasing extent with the development of produc-

776 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

tion, is concealed by the fact that the capitalised rent, i.e., pre¬
cisely this capitalised tribute, appears as the price of land, which
may therefore be sold like any other article of commerce. The buyer,
therefore, does not feel that his title to the rent is obtained
gratis, and without the labour, risk, and spirit of enterprise of the
capitalist, but rather that he has paid for it with an equivalent. To
the buyer, as previously indicated, the rent appears merely as in¬
terest on the capital with which he has purchased the land and
consequently his title to the rent. In the same way, the slave¬
holder considers a Negro, whom he has purchased, as his property,
not because the institution of slavery as such entitles him to that
Negro, but because he has acquired him like any other commodity,
through sale and purchase. But the title itself is simply trans¬
ferred, and not created by the sale. The title must exist before it can
be sold, and a series of sales can no more create this title through
continued repetition than a single sale can. What created it in the
first place were the production relations. As soon as these have
reached a point where they must shed their skin, the material
source of the title, justified economically and historically and aris¬
ing from the process which creates social life, falls by the wayside,
along with all transactions based upon it. From the standpoint of
a higher economic form of society, private ownership of the globe
by single individuals will appear quite as absurd as private owner¬
ship of one man by another. Even a whole society, a nation, or
even all simultaneously existing societies taken together, are not
the owners of the globe. They are only its possessors, its usufructu¬
aries, and, like boni patres familias, they must hand it down to
succeeding generations in an improved condition.

In the following analysis of the price of land we leave out of con¬
sideration all fluctuations of competition, all land speculation,
and also small landed property, in which land forms the principal
instrument of producers and must, therefore, be bought by them
at any price.

I. The price of land may rise without the rent rising, namely:

1) by a mere fall in interest rate, which causes the rent to be
sold more dearly, and thereby the capitalised rent, or price of
land, rises;

2) because the interest on capital incorporated in the land rises.

II. The price of land may rise, because the rent increases.

The rent may increase, because the price of the product of the

land rises, in which case the rate of differential rent always rises,

BUILDING SITE AND MINING RENT. PRICE OF LAND

777

whether the rent on the worst cultivated soil be large, small or
non-existent. By rate we mean the ratio of that portion of surplus-
value converted into rent to the invested capital which produces
the agricultural product. This differs from the ratio of surplus-
product to total product, for the total product does not comprise
the entire invested capital, namely, the fixed capital, which contin¬
ues to exist alongside the product. On the other hand, it covers
the fact that on soils yielding differential rent an increasing por¬
tion of the product is transformed into an excess of surplus-product.
The increase in price of agricultural product of the worst soil first
creates rent and thereby the price of land.

The rent, however, may also increase without a rise in price of
the agricultural product. This price may remain constant, or even
decrease.

If the price remains constant, the rent can grow only (apart
from monopoly prices) because, on the one hand, given the same
amount of capital invested in the qld lands, new lands of better
quality are cultivated, which merely suffice, however, to cover
the increased demand, so that the regulating market-price remains
unchanged. In this case, the price of the old lands does not rise,
but the price of the newly cultivated lands rises above that of the
old ones.

Or, on the other hand, the rent rises because the mass of capital
exploiting the land increases, assuming that the relative productiv-
ity and market-price remain the same. Although the rent thus
remains the same compared with the invested capital, still its
mass, for instance, may be doubled, because the capital itself has
doubled. Since no fall in price has occurred, the second investment
of capital yields a surplus-profit just as well as the first, and it
likewise is transformed into rent after the expiration of the lease.
The mass of rent rises here, because the mass of capital producing
a rent increases. The contention that various successive invest¬
ments of capital in the same piece of land can produce rent only
in so far as their yield is unequal, so that a differential rent thus
arises, is reduced to the contention that when two capitals of
£1,000 each are invested in two fields of equal productivity, only
one of them can produce a rent, although both fields belong to a
better soil type, which produces differential rent. (The mass of
rental, the total rent of a country, grows therefore w'ith the mass
of capital invested, without the price of the individual pieces of
land, or the rate of rent, or even the mass of rent on individual
pieces of land, necessarily increasing; the amount of rental grows in
this case with the extension of cultivation over a wider area. This

778 transformation of surplus-profit into ground-rent

may even be combined with a decrease in rent on individual hold¬
ings.) Otherwise, this contention would lead to the other, namely,
that the investment of capital in two different pieces of land
existing side by side follows different laws than the successive
investment of capital in the same plot, whereas differential rent is
derived precisely from the identity of the law in both cases, from the
increased productiveness of capital invested either in the same field
or in different fields. The only modification which exists here and
is overlooked is that successive investments of capital, when ap¬
plied to different pieces of land, meet the barrier of landed property,
which is not the case with successive investments of capital in the
same piece of land. This accounts for the opposing tendencies by
which these two different forms of investment curb each other in
practice. No difference in capital ever appears here. If the composi¬
tion of the capital remains the same, and similarly the rate of sur¬
plus-value, the rate of profit remains unaltered, so that the mass
of profit is doubled when the capital is doubled. In like manner
the rate of rent remains the same under the assumed conditions.
If a capital of £1,000 produces a rent of x, then a capital of £2,000,
under the assumed conditions, produces a rent of 2x. But calcu¬
lated with reference to the area of land, which has remained unal¬
tered, since, according to our assumption, the doubled capital
operates in the same field, the level of rent has also risen as a con¬
sequence of its increase in mass. The same acre which yielded a
rent of £2, now yields £4. 41

41 It is one of the merits of Rodbertus whose important work on rent
[Sociale Briefe an von Kirchmann, Dritter Brief: Widerlegung der Ricar-
do’schen Lehre von der Grundrente und Begriindung einer neuen Renten-
theorie, Berlin, 1851. — Ed. ] we shall discuss in Book IV [i.e., Theorien iiber
den Mehrwert. K. Marx/F. Engels, Werke, Band 26, 2. Teil, S. 7-102,
139-51.— Ed. 1 to have developed this point. He commits the one error,
however, of assuming, in the first place, that as regards capital an increase
in profit is always expressed by an increase in capital, so that the ratio re¬
mains the same when the mass of profit increases. But this is erroneous,
since the rate of profit may increase, given a changed composition of capital,
even if the exploitation of labour remains the same, precisely because the
proportional value of the constant portion of capital compared with its
variable portion falls. Secondly, he commits the mistake of dealing with
the ratio of money-rent to a quantitatively definite piece of land, e.g., an
acre, as though it had been the general premise of classical economics in its
analysis of the rise or fall of rent. This, again, is erroneous. Classical econom¬
ics always treats the rate of rent, in so far as it considers rent in its natural
form, with reference to the product, and in -so far as it considers rent as
money-rent, with reference to the advanced capital, because these are in
fact the rational expressions.

BUILDING SITE AND MINING RENT. PRICE OK LAND

779

The relation of a portion of the surplus-value, of money-rent—
for money is the independent expression of value — to the land is
in itself absurd and irrational; for the magnitudes which are here
measured by one another are incommensurable — a particular
use-value, a piece of land of so many and so many square feet, on
the one hand, and value, especially surplus-value, on the other.
This expresses in fact nothing more than that, under the given con¬
ditions, the ownership of so many square feet of land enables the
landowner to wrest a certain quantity of unpaid labour, which
the capital wallowing in these square feet like a hog in potatoes
has realised. [Written in the manuscript here in brackets, but
crossed out, is the name “Liebig. ” ] But prima facie the expression
is the same as if one desired to speak of the relation of a five-
pound note to the diameter of the earth. However, the reconcilia¬
tion of irrational forms in which certain economic relations appear
and assert themselves in practice does not concern the active agents
of these relations in their everyday life. And since they are accus¬
tomed to move about in such relations, they find nothing strange
therein. A complete contradiction offers not the least mystery to
them. They feel as much at home as a fish in water among mani¬
festations which are separated from their internal connections and
absurd when isolated by themselves. What Hegel says with refer¬
ence to certain mathematical formulas applies here: that which
seems irrational to ordinary common sense is rational, and that
which seems rational to it is itself irrational.*

When considered in connection with the land area itself, a rise
in the mass of rent is thus expressed in the same way as a rise in
the rate of rent, and hence the embarrassment experienced when
the conditions which would explain the one case are lacking in the
other.

The price of land, however, may also rise even when the price
of the agricultural product decreases.

In this case, the differential rent, and with it the price of the bet¬
ter lands, may have risen, owing to further differentiations. Or,
if this is not the case, the price of the agricultural product may
have fallen by virtue of greater labour productivity but in such a
manner that the increased production more than counterbalances
this. Let us assume that one quarter cost 60 shillings. Now, if the
same acre, with the same capital, should produce two quarters
instead of one, and the price of one quarter should fall to 40 shil-

* Hegel, Encyclopddie der philosophischen Wissenschaften in Grundrisse,
1. Teil, Die Logik. In: Werke, Band 6, Berlin, 1840, S. 404 .—Ed.

780 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

lings, then two quarters would cost 80 shillings, so that the value
of the product of the same capital invested in the same acre would
have risen by one-third, despite the fall in price per quarter by
one-third. How this is possible without selling the product above
its price of production or above its value, has been developed in
the analysis of differential rent. As a matter of fact it is possible
only in two ways Either bad soil is excluded from competition,
but the price of the better soil increases with the increase in differ¬
ential rent, i.e., the general improvement affects the various soil
types differently. Or, the same price of production (and the same
value, if absolute rent is paid) expresses itself on the worst soil
through a larger mass of products, when labour productivity has
become greater. The product represents the same value as before,
but the price of its aliquot parts has fallen, while their number
has increased. This is impossible when the same capital has been
employed; for in this case the same value always expresses itself
through any portion of the product. It is possible, however, when
additional capital has been expended for gypsum, guano, etc.,
in short, for improvements the effects of which extend over several
years. The stipulation is that the price of an individual quarter
falls, but not to the same extent as the number of quarters in¬
creases.

III. These different conditions under which rent may rise, and
with it the price of land in general, or of particular kinds of land,
may partly compete, or partly exclude one another, and can only
act alternately. But it follows from the foregoing that the conse¬
quence of a rise in the price of land does not necessarily signify
also a rise in rent, or that a rise in rent, which always brings with
it a rise in the price of land, is not necessarily contingent upon an
increase in the agricultural product.42

Rather than tracing to their origin the real natural causes lead¬
ing to an exhaustion of the soil, which, incidentally, were un¬
known to all economists writing on differential rent owing to the
level of agricultural chemistry in their day, the shallow concep¬
tion was seized upon that any amount of capital cannot be invested
in a limited area of land; as the Edinburgh Review,* for instance,
argued against Richard Jones that all of England cannot be fed

42 Concerning the actual fall in the price of land when rent rises, see
Passy.

* Tome LIV, August-December 1831, pp. 94-95. — Ed.

BUILDING SITE AND MINING RENT. PRICE OF LAND

781

through the cultivatioD of Soho Square. If this be considered a
special disadvantage of agriculture, precisely the opposite is true.
It is possible to invest capital here successively with -fruitful re¬
sults, because the soil itself serves as an instrument of production,
which is not the case with a factory, or holds only to a limited
extent, since it serves only as a foundation, as a place and a space
providing a basis of operations. It is true that, compared with
scattered handicrafts, large-scale industry may concentrate much
production in a small area. Nevertheless a definite amount of
space is always required at any given level of productivity, and the
construction of tall buildings also has its practical limitations.
Beyond this any expansion of production also demands an exten¬
sion of land area. The nxed capital invested in machinery, etc.,
does not improve through use, but on the contrary, wears out. New
inventions may indeed permit some improvement in this respect,
but with any given development in productive power, machines
will always deteriorate. If productivity is rapidly developed, all
of the old machinery must be replaced by the more advantageous;
in other words, it is lost. The soil, however, if properly treated,
improves all the time. The advantage of the soil, permitting
successive investments of capital to bring gains without loss of
previous investments, implies the possibility of differences in
yield from these successive investments of capital.

CHAPTER XLVII

GENESIS OF CAPITALIST GROUND-RENT
I. INTRODUCTORY REMARKS

We must clarify in our minds wherein lies the real difficulty in
analysing ground-rent from the viewpoint of modern economics,
as the theoretical expression of the capitalist mode of production.
Even many of the more modern writers have not as yet grasped
this, as evidenced by each renewed attempt to “newly” explain
ground-rent. The novelty almost invariably consists in a relapse
into long out-of-date views. The difficulty is not to explain the
surplus-product produced by agricultural capital and its corre¬
sponding surplus-value in general. This question is solved in the
analysis of the surplus-value produced by all productive capital,
in whatever sphere it may be invested. The difficulty consists
rather in showing the source of the excess of surplus-value paid
the landlord by capital invested in land in the form of rent, after
equalisation of the surplus-value to the average profit among the
various capitals, after the various capitals have shared in the total
surplus-value produced by the social capital in all spheres of
production in proportion to their relative size; in other words,
the source subsequent to this equalisation and the apparently
already completed distribution of all surplus-value which, in
general, is to be distributed. Quite apart from the practical mo¬
tives, which prodded modern economists as spokesmen of industrial
capital against landed property to investigate this question —
motives which we shall point out more clearly in the chapter on
history of ground-rent— the question was of paramount interest
to them as theorists. To admit that the appearance of rent for
capital invested in agriculture is due to some particular effect
produced by t”he sphere of investment itself, due to singular quali¬
ties of the earth’s crust itself, is tantamount to giving up the
conception of value as such, thus tantamount to abandoning all

GENESIS OF CAPITALIST GROUND-RENT

783

attempts at a scientific understanding of this field. Even the sim¬
ple observation that rent is paid out of the price of agricultural
produce — which takes place even where rent is paid in kind if
the farmer is to recover his price of production — showed the ab¬
surdity of attempting to explain the excess of this price over the
ordinary price of production; in other words, to explain the rela¬
tive dearness of agricultural products on the basis of the excess of
natural productivity of agricultural production over the produc¬
tivity of other lines of production. For the reverse is true: the
more productive labour is, the cheaper is every aliquot part of
its product, because so much greater is the mass of use-values
incorporating the same quantity of labour, i.e., the same value.

The whole difficulty in analysing rent, therefore, consists in
explaining the excess of agricultural profit over the average profit,
not the surplus-value, but the excess of surplus-value characteris¬
tic of this sphere of production; in other words, not the “net prod¬
uct”, but the excess of this net product over the net product of
other branches of industry. The average profit itself is a product
formed under very definite historical production relations by the
movement of social processes, a product which, as we have seen,
requires very complex adjustment. To be able to speak at all of a
surplus over the average profit, this average profit itself must al¬
ready be established as a standard and as a regulator of produc¬
tion in general as is the case under capitalist production. For
this reason there can be no talk of rent in the modern sense, a rent
consisting of a surplus over the average profit, i.e., over and
above the proportional share of each individual capital in the
surplus-value produced by the total social capital, in social for¬
mations where it is not capital which performs the function of
enforcing all surplus-labour and appropriating directly all sur¬
plus-value. And where therefore capital has not yet completely,
or only sporadically, brought social labour under its control.
It reflects naivete, e.g., of a person like Passy (see below), when
he speaks of rent in primitive society as a surplus over profit* —
a historically defined social form of surplus-value, but which,
according to Passy, might almost as well exist without any society.

For the older economists, who in general merely begin analys¬
ing the capitalist mode of production, still undeveloped in their
day, the analysis of rent offers either no difficulty at all, or only
a difficulty of a completely different kind. Petty, Cantillon, and

* Passy, Rente da sol. In: Dictionnaire de l’economic politique, Tome
II, Paris, 1854, p. 511. — Ed.

784 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

in general those writers who are closer to feudal times, assume
ground-rent to be the normal form of surplus-value in general,*
whereas profit to them is still amorphously combined with wages,
or at best appears to be a portion of surplus-value extorted by
the capitalist from the landlord. These writers thus take as their
point of departure a situation where, in the first place, the agri¬
cultural population still constitutes the overwhelming majority
of the nation, and, secondly, the landlord still appears as the
person appropriating at first hand the surplus-labour of the direct
producers by virtue of his monopoly of landed property, where
landed property, therefore, still appears as the main condition
of production. For these writers the question could not yet be
posed, which, inversely, seeks to investigate from the viewpoint
of capitalist production how landed property manages to wrest
back again from capital a portion of the surplus-value produced
by it (that is, filched by it from the direct producers) and already
appropriated directly.

The physiocrats are troubled by difficulties of another nature.
As the actually first systematic spokesmen of capital, they attempt
to analyse the nature of surplus-value in general. For them, this
analysis coincides with the analysis of rent, the only form of sur¬
plus-value which they recognise. Therefore, they consider rent-
yielding, or agricultural, capital to be the only capital producing
surplus-value, and the agricultural labour set in motion by it, the
only labour producing surplus-value, which from a .capitalist
viewpoint is quite properly considered the only productive labour.
They are quite right in considering the creation of surplus-value
as decisive. Apart from other merits to be set forth in Book IV,
they deserve credit primarily for going back from merchant’s
capital, which functions solely in the sphere of circulation, to
productive capital, in opposition to the mercantile system, which,
with its crude realism, constitutes the actual vulgar economy of
that period, pushing into the background in favour of its own
practical interests the beginnings of scientific analysis made by
Petty and his successors. In this critique of the mercantile system,
incidentally, only its conceptions of capital and surplus-value
are dealt with. It has already been indicated previously that the
monetary system correctly proclaims production for the world-
market and the transformation of the output into commodities,

• [Petty] A Treatise of Taxes and Contributions, London, 16C7,
pp. 23-24; [Richard Cantillon] Essal sur la nature du commerce en gfneral,
Amsterdam, 1756. — Ed.

GENESIS OP CAPITALIST GROUND-RENT

785

and thus into money, as the prerequisite and condition of capi¬
talist production. In this system's further development into the
mercantile system, it is no longer the transformation of commod¬
ity-value into money, but the creation of surplus-value which is
decisive — but from the meaningless viewpoint of the circulation
sphere and, at the same time, in such manner that this surplus-
value is represented as surplus money, as the balance of trade sur¬
plus. At the same time, however, the characteristic feature of
the interested merchants and manufacturers of that period, which
is in keeping with the stage of capitalist development represented
by them, is that the transformation of feudal agricultural societies
into industrial ones and the corresponding industrial struggle of
nations on the world-market depends on an accelerated develop¬
ment of capital, which is not to be arrived at along the so-called
natural path, but rather by means of coercive measures. It makes
a tremendous difference whether national capital is gradually
and slowly transformed into industrial capital, or whether this
development is accelerated by means of a tax which they impose
through protective duties mainly upon landowners, middle and
small peasants, and handicraftsmen, by way of accelerated ex¬
propriation of the independent direct producers, and through the
violently accelerated accumulation and concentration of capital,
in short by means of the accelerated establishment of conditions
of capitalist production. It simultaneously makes an enormous
difference in the capitalist and industrial exploitation of the
natural national productive power. Hence the national character
of the mercantile system is not merely a phrase on the lips
of its spokesmen. Under the pretext of concern solely for the
wealth of the nation and the resources of the state, they, in fact,
pronounce the interests of the capitalist class and the amassing
of riches in general to be the ultimate aim of the state, and thus
proclaim bourgeois society in place of the old divine state. But
at the same time they are consciously aware that the develop¬
ment of the interests of capital and of the capitalist class, of cap¬
italist production, forms the foundation of national power and
national ascendancy in modern society.

The physiocrats, furthermore, are correct in stating that in fact
all production of surplus-value, and thus all development of
capital, has for its natural basis the productiveness of agricul¬
tural labour. If man were not capable of producing in one
working-day more means of subsistence, which signifies in the
strictest sense more agricultural products than every labourer needs
for his own reproduction, if the daily expenditure of his entire

786 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

labour-power sufficed merely to produce the means of subsistence
indispensable for his own individual requirements, then one could
not speak at all either of surplus-product or surplus-value. An
agricultural labour productivity exceeding the individual require¬
ments of the labourer is the basis of all societies, and is above all
the basis of capitalist production, which disengages a constantly
increasing portion of society from the production of basic food¬
stuffs and transforms them into “free heads,” as Steuart* has it,
making them available for exploitation in other spheres.

But what can be said of more recent writers on economics, such
as Daire, Passy, etc., who parrot the most primitive conceptions
concerning the natural conditions of surplus-labour and thereby
surplus-value in general, in the twilight of classical economy,
indeed on its very death-bed, and who imagine that they are thus
propounding something new and striking on ground-rent** long
after this ground-rent has been investigated as a special form and
become a specific portion of surplus-value? It is particularly char¬
acteristic of vulgar economy that it echoes what was new, origi¬
nal, profound and justified during a specific outgrown stage of
development, in a period when it has turned platitudinous,
stale, and false. It thus confesses its complete ignorance of the
problems which concerned classical economy. It confounds them
with questions that could only have been posed on a lower level
of development of bourgeois society. The same holds true of
its incessant and self-complacent rumination of the physiocratic
phrases concerning free trade. These phrases have long since
lost all theoretical interest, no matter how much they may en¬
gage the practical attention of this or that state.

In natural economy proper, when no part of the agricultural
product, or but a very insignificant portion, enters into the process
of circulation, and then only a relatively small portion of that
part of the product which represents the landlord’s revenue, as,
e.g., in many Roman latifundia, or upon the villas of Charle¬
magne, or more or less during the entire Middle Ages (see Vin$ard,
Histoire du travail), the product and surplus-product of the large
estates consists by no means purely of products of agricultural
labour. It encompasses equally well the products of industrial
labour. Domestic handicrafts and manufacturing labour, as sec-

* J. Steuart, An Inquiry into the Principles of Political Economy, Vol. I,
Dublin, 1770, p. 396. — Ed.

** Daire, introduction. In: Physiocrats, 1. Teil, Paris, 1846; Passy,
Rente du sol. In: Dictionnaire de l’economie politique, Tome II, Paris, 1854,
p. 511.— Ed.

GENESIS OF CAPITALIST GROUND-RENT

787

ondary occupations of agriculture, which forms the basis, are the
prerequisite of that mode of production upon which natural econ¬
omy rests — in European antiquity and the Middle Ages as well
as in the present-day Indian community, in which the traditional
organisation has not yet been destroyed. The capitalist mode of
production completely abolishes this relationship; a process which
may be studied on a large scale particularly in England during
the last third of the 18th century. Thinkers like Herrenschwand,
who had grown up in more or less semi-feudal societies, still
consider, e.g., as late as the close of the 18th century, this sepa¬
ration of manufacture from agriculture as a foolhardy social
adventure, as an unthinkably risky mode of existence. And even
in the agricultural economies of antiquity showing the greatest
analogy to capitalist agriculture, namely Carthage and Rome,
the similarity to a plantation economy is greater than to a form
corresponding to the really capitalist mode of exploitation.423
A formal analogy, which, simultaneously, however, turns out
to be completely illusory in all essential points to a person fa¬
miliar with the capitalist mode of production, who does not,
like Herr Mommsen,43 discover a capitalist mode of production
in every monetary economy, is not to be found at all in conti¬
nental Italy during antiquity, but at best only in Sicily, since
this island served Rome as an agricultural tributary so that its
agriculture was aimed chiefly at export. Farmers in the modern
sense existed there.

An erroneous conception of the nature of rent is based upon the
fact that rent in kind, partly as tithes to the church and partly as
a curiosity perpetuated by long-established contracts, has been
dragged over into modern times from the natural economy of the
Middle Ages, completely in contradiction to the conditions of the
capitalist mode of production. It thereby creates the impression

4,3 Adam Smith emphasises how, in his ti me (and this applies also to
the plantations in tropical and subtropical countries in our own day), rent
and proDt Were not yet divorced from one another [Smith, An Inquiry
into the Nature and Causes of the Wealth of Nations, Aberdeen, London,
1848, p. 44 .—Ed. ], for the landlord was simultaneously a capitalist, just as
Cato, for instance, was on his estates. But this separation is precisely the
prerequisite for the capitalist mode of production, to whose conception the
basis of slavery moreover stands in direct contradiction.

4* Herr Mommsen, in his “Roman History,” by no means uses the term
capitalist in the sense employed by modern economics and modern society,
but rather in the manner of popular conception, such as still continues to
thrive, though not in England or America, but nevertheless on the Euro¬
pean continent, as an ancient tradition reflecting bygone conditions.

788 TRANSFORMATION OF SURPLUS-PROFIT INTO OROUND-RENT

that rent does not arise from the price of the agricultural product,
but from its mass, thus not from social conditions, but from the
earth. We have previously shown that although surplus-value is
manifested in a surplus-product the converse does not hold that a
surplus-product, representing a mere increase in the mass of prod¬
uct, constitutes surplus-value. It may represent a minus quantity
in value. Otherwise the cotton industry of 1860, compared with
that of 1840, would show an enormous surplus-value, whereas on
the contrary the price of the yarn has fallen. Rent may increase
enormously as a result of a succession of crop failures, because the
price of grain rises, although this surplus-value appears as an ab¬
solutely decreasing mass of dearer wheat. Conversely, the rent may
fall in consequence of a succession of bountiful years, because the
price falls, although the reduced rent appears as a greater mass of
cheaper wheat. As regards rent in kind, it should be noted now
that, in the first place, it is a mere tradition carried over from
an obsolete mode of production and managing to prolong its
existence as a survival. Its contradiction to the capitalist mode
of production is shown by its disappearance of itself from pri¬
vate contracts, and its being forcibly shaken off as an anachro¬
nism, wherever legislation was able to intervene as in the case
of church tithes in England. Secondly, however, where rent in
kind persisted on the basis of capitalist production, it was no
more, and could be no more, than an expression of money-rent
in medieval garb. Wheat, for instance, is quoted at 40 shillings
per quarter. One portion of this wheat must replace the wages
contained therein, and must be sold to become available for
renewed expenditure. Another portion must be sold to pay its
proportionate share of taxes. Seed and even a portion of fertilis¬
er enter as commodities into the process of reproduction, wherever
the capitalist mode of production and with it division of social
labour are developed, i.e., they must be purchased for replace¬
ment purposes; and therefore another portion of this quarter must
be sold to obtain money for this. In so far as they need not be
bought as actual commodities, but are taken out of the product
itself in kind, in order to enter into its reproduction anew as
conditions of production— as occurs not only in agriculture, but
in many other lines of production producing constant capital —
they figure in the books as money of account and are deducted as
elements of the cost-price. The wear and tear of machinery, and
of fixed capital in general, must be made good in money. And
finally comes profit, which is calculated on this sum, expressed
as costs either in actual money or in money of account. This

GENESIS OF CAPITALIST GROUND-RENT

789

profit is represented by a definite portion of the gross product,
which is determined by its price. And the excess portion which
then remains forms rent. If the rent in kind stipulated by con¬
tract is greater than this remainder determined by the price, then
it does not constitute rent, but a deduction from profit. Owing
to this possibility alone, rent in kind is an obsolete form, in so
far as it does not reflect the price of the product, but may be
greater or smaller than the real rent, and thus may comprise
not only a deduction from profit, but also from those elements
required for capital replacement. In fact, this rent in kind, so
far as it is rent not merely in name but also in essence, is exclu¬
sively determined by the excess of the price of the product over
its price of production. Only it presupposes that this variable
is a constant magnitude. But it is such a comforting reflection that
the product in kind should suffice, first, to maintain the labourer
secondly, to leave the capitalist tenant farmer more food than he
needs, and finally, that the remainder should constitute the nat¬
ural rent. Quite like a manufacturer producing 200,000 yards of
cotton goods. These yards of goods not only suffice to clothe his
labourers; to clothe his wife, all his offspring and himself abun¬
dantly; but also leave over enough cotton for sale, in addition to
paying an enormous rent in terms of cotton goods. It is all so
simple! Deduct the price of production from 200,000 yards of
cotton goods, and a surplus of cotton goods must remain for rent.
But it is indeed a naive conception to deduct the price of pro¬
duction of, say, £10,000 from 200,000 yards of cotton goods, with¬
out knowing the selling price, to deduct money from cotton goods,
to deduct an exchange-value from a use-value as such, and thus
to determine the surplus of yards of cotton goods over pounds
sterling. It is worse than squaring the circle, which is at least
based upon the conception that there is a limit at which straight
lines and curves imperceptibly flow together. But such is the
prescription of M. Passy. Deduct money from cotton goods,
before the cotton goods have been converted into money, either in
one’s mind or in reality! What remains is the rent, which, however,
is to be grasped naturaliter (see, for instance, Karl Arnd*)
and not by deviltries of sophistry. The entire restoration of rent
in kind is finally reduced to this foolishness, the deduction of
the price of production from so many and so many bushels of wheat,
and the subtraction of a sum of money from a cubic measure.

* K. Arnd, Die naturgemasse Volkswirtschaft, gegenuber dem Monopolies
geiste und dem Communismus, Hanau, 1845, S. 461-62. — Ed.

26 — 2494

790 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

II. LABOUR RENT

If we consider ground-rent in its simplest form, that of labour
rent, where the direct producer, using instruments of labour (plough,
cattle, etc.) which actually or legally belong to him, cultivates
soil actually owned by him during part of the week, and works
during the remaining days upon the estate of the feudal lord with¬
out any compensation from the feudal lord, the situation here is
still quite clear, for in this case rent and surplus-value are identi¬
cal. Rent, not profit, is the form here through which unpaid
surplus-labour expresses itself. To what extent the labourer (a self-
sustaining serf) can secure in this case a surplus above his indis¬
pensable necessities of life, i.e., a surplus above that which we
would call wages under the capitalist mode of production, de¬
pends, other circumstances remaining unchanged, upon the pro¬
portion in which his labour-time is divided into labour-time for
himself and enforced labour-time for his feudal lord. This sur¬
plus above the indispensable requirements of life, the germ of
what appears as profit under the capitalist mode of production,
is therefore wholly determined by the amount of ground-rent,
which in this case is not only directly unpaid surplus-labour,
but also appears as such. It is unpaid surplus-labour for the
“owner” of the means of production, which here coincide with
the land, and so far as they differ from it, are mere accessories
to it. That the product of the serf must here suffice to reproduce
his conditions of labour, in addition to his subsistence, is a cir¬
cumstance which remains the same under all modes of produc¬
tion. For it is not the result of their specific form, but a natural
requisite of all continuous and reproductive labour in general,
of any continuing production, which is always simultaneously
reproduction, i.e., including reproduction of its own operating
conditions. It is furthermore evident that in all forms in which
the direct labourer remains the “possessor” of the means of pro¬
duction and labour conditions necessary for the production of
his own means of subsistence, the property relationship must
simultaneously appear as a direct relation of lordship and ser¬
vitude, so that the direct producer is not free; a lack of freedom
which may be reduced from serfdom with enforced labour to a
mere tributary relationship. The direct producer, according to
our assumption, is to be found here in possession of his own means
of production, the necessary material labour conditions required
for the realisation of his labour and the production of his means
of subsistence. He conducts his agricultural activity and the rural

GENESIS OF CAPITALIST GROUND-RENT

791

home industries connected with it independently. This independ¬
ence is not undermined by the circumstance that the small
peasants may form among themselves a more or less natural
production community, as they do in India, since it is here merely
a question of independence from the nominal lord of the manor.
Under such conditions the surplus-labour for the nominal owner
of the land can only be extorted from them by other than eco¬
nomic pressure, whatever the form assumed may be.44 This differs
from slave or plantation economy in that the slave works under
alien conditions of production and not independently. Thus,
conditions of personal dependence are requisite, a lack of personal
freedom, no matter to what extent, and being tied to the soil
as its accessory, bondage in the true sense of the word. Should
the direct producers not be confronted by a private landowner,
but rather, as in Asia, under direct subordination to a state which
stands over them as their landlord and simultaneously as sover¬
eign, then rent and taxes coincide, or rather, there exists no tax
which differs from this form of ground-rent. Under such circum¬
stances, there need exist no stronger political or economic pres¬
sure than that common to all subjection to that state. The state
is then the supreme lord. Sovereignty here consists, in the owner¬
ship of land concentrated on a national scale. But, on the other
hand, no private ownership of land exists, although there is both
private and common possession and use of land.

The specific economic form, in which unpaid surplus-labour is
pumped out of direct producers, determines the relationship of
rulers and ruled, as it grows directly out of production itself and,
in turn, reacts upon it as a determining element. Upon this, how¬
ever, is founded the entire formation of the economic community
which grows up out of the production relations themselves, thereby
simultaneously its specific political form. It is always the direct
relationship of the owners of the conditions of production to the
direct producers — a relation always naturally corresponding to
a definite stage in the development of the methods of labour and
thereby its social productivity — which reveals the innermost
secret, the hidden basis of the entire social structure, and with it
the political form of the relation of sovereignty and dependence,
in short, the corresponding specific form of the state. This does not

44 Following the conquest of a country, the immediate aim of a conquer¬
or was also to convert its people to his own use. Cf. Linguet [ Theorle des
loix civlles, ou Principes fondamentaux de la soclete, Tomes I-II, Londres,
1767. — Ed.]. See also Moser [Osnabrukische Geschtchte, 1. Theil, Berlin
und Stettin, S. 178. — Ed.].

26-

792 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

prevent the same economic basis — the same from the standpoint
of its main conditions — due to innumerable different empirical
circumstances, natural environment, racial relations, external
historical influences, etc., from showing infinite variations and
gradations in appearance, which can be ascertained only by anal¬
ysis of the empirically given circumstances.

So much is evident with respect to labour rent, the simplest and
most primitive form of rent: Rent is here the primeval form of
surplus-labour and coincides with it. But this identity of sur¬
plus-value with unpaid labour of others need not be analysed here,
because it still exists in its visible, palpable form, since the labour
of the direct producer for himself is still separated in space and
time from his labour for the landlord, and the latter appears
directly in the brutal form of enforced labour for a third person.
In the same way the “attribute ” possessed by the soil to produce
rent is here reduced to a tangibly open secret, for the disposition to
furnish rent here also includes human labour-power bound to the
soil, and the property relation which compels the owner of labour-
power to drive it on and activate it beyond such measure as is
required to satisfy his own indispensable needs. Rent consists
directly in the appropriation of this surplus expenditure of labour-
power by the landlord; for the direct producer pays him no addi¬
tional rent. Here, where surplus-value and rent are not only
identical but where surplus-value has the tangible form of sur¬
plus-labour, the natural conditions or limits of rent, being those
of surplus-value in general, are plainly clear. The direct producer
must 1) possess enough labour-power, and 2) the natural conditions
of his labour, above all the soil cultivated by him, must be pro¬
ductive enough, in a word, the natural, productivity of his labour
must he big enough to give him the possibility of retaining some
surplus-labour over and above that required for the satisfaction
of his own indispensable needs. It is not this possibility which
creates the rent, but rather compulsion which turns this possi¬
bility into reality. But the possibility itself is conditioned by
subjective and objective natural circumstances. And here too lies
nothing at all mysterious. Should labour-power be minute, and
the natural conditions of labour scanty, then the surplus-labour
is small, but in such a case so are the wants of the producers on
the one hand and the relative number of exploiters of surplus-
labour on the other, and finally so is the surplus-product, whereby
this barely productive surplus-labour is realised for those few
exploiting landowners.

Finally, labour rent in itself implies that, all other circumstances

GENESIS OP CAPITALIST GROUND-RENT

793

remaining equal, it will depend wholly upon the relative amount
of surplus-labour, or enforced labour, to what extent the direct
producer shall be enabled to improve his own condition, to acquire
wealth, to produce an excess over and above his indispensable
means of subsistence, or, if we wish to anticipate the capitalist
mode of expression, whether he shall be able to produce a profit
for himself, and how much of a profit, i.e., an excess over his
wages which have been produced by himself. Rent here is the nor¬
mal, all-absorbing, so to say legitimate form of surplus-labour,
and far from being excess over profit, which means in this case
being above any other excess over wages, it is rather that the
amount of such profit, and even its very existence, depends, other
circumstances being equal, upon the amount of rent, i.e., the
enforced surplus-labour to be surrendered to the landowners.

Since the direct producer is not the owner, but only a possessor,
and since all his surplus-labour de jure actually belongs to the
landlord, some historians have expressed astonishment that it
should be at all possible for those subject to enforced labour, or
serfs, to acquire any independent property, or relatively speaking,
wealth, under such circumstances. However, it is evident that tra¬
dition must play a dominant role in the primitive and undevel¬
oped circumstances on which these social production relations
and the corresponding mode of production are based. It is fur¬
thermore clear that here as always it is in the interest of the ruling
section of society to sanction the existing order as law and to
legally establish its limits given through usage and tradition.
Apart from all else, this, by the way, comes about of itself as
soon as the constant reproduction of the basis of the existing
order and its fundamental relations assumes a regulated and
orderly form in the course of time. And such regulation and order
are themselves indispensable elements of any mode of produc¬
tion, if it is to assume social stability and independence from
mere chance and arbitrariness. These are precisely the form of
its social stability and therefore its relative freedom from mere
arbitrariness and mere chance. Under backward conditions of
the production process as well as the corresponding social rela¬
tions, it achieves this form by mere repetition of their very re¬
production. If this has continued on for some time, it entrenches
itself as custom and tradition and is finally sanctioned as an
explicit law. However, since the form of this surplus-labour,
enforced labour, is based upon the imperfect development of
all social productive powers and the crudeness of the methods
of labour itself, it will naturally absorb a relatively much

794 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

smaller portion of the direct producer’s total labour than under
developed modes of production, particularly the capitalist mode
of production. Take it, for instance, that the enforced labour
for the landlord originally amounted to two days per week. These
two days of enforced labour per week are thereby fixed, are a con¬
stant magnitude, legally regulated by prescriptive or written law.
But the productivity of the remaining days of the week, which are
at the disposal of the direct producer himself, is a variable mag¬
nitude, which must develop in the course of his experience, just
as the new wants he acquires, and just as the expansion of the
market for his product and the increasing assurance with which
he disposes of this portion of his labour-power will spur him on to
a greater exertion of his labour-power, whereby it should not be
forgotten that the employment of his labour-power is by no
means confined to agriculture, but includes rural home industry.
The possibility is here presented for definite economic develop¬
ment taking place, depending, of course, upon favourable cir¬
cumstances, inborn racial characteristics, etc.

III. RENT IN KIND

The transformation of labour rent into rent in kind changes
nothing from the economic standpoint in the nature of ground-
rent. The latter consists, in the forms considered here, in that rent
is the sole prevailing and normal form of surplus-value, or sur¬
plus-labour. This is further expressed in the fact that it is the only
surplus-labour, or the only surplus-product, which the direct pro¬
ducer, who is in possession of the labour conditions needed for his
own reproduction, must give up to the owner of the land, which in
this situation is the all-embracing condition of labour. And, fur¬
thermore, that land is the only condition of labour which con¬
fronts the direct producer as alien property, independent of him,
and personified by the landlord. To whatever extent rent in kind
is the prevailing and dominant form of ground-rent, it is further¬
more always more or less accompanied by survivals of the earlier
form, i.e., of rent paid directly in labour, corvee-labour, do matter
whether the landlord be a private person or the state. Rent in
kind presupposes a higher stage of civilisation for the direct
producer, i.e., a higher level of development of his labour and of
society in general. And it is distinct from the preceding form in
that surplus-labour needs no longer be performed in its natural
form, thus no longer under the direct supervision and compulsion
of the landlord or his representatives; the direct producer is driven

GENESIS OF CAPITALIST GROUND-RENT

795

rather by force of circumstances than by direct coercion, through
legal enactment rather than the whip, to perform it on his own
responsibility. Surplus-production, in the sense of production
beyond the indispensable needs of the direct producer, and within
the field of production actually belonging to him, upon the land
exploited by himself instead of, as earlier, upon the nearby lord’s
estate beyond his own land, has already become a self-understood
rule here. In this relation the direct producer more or less disposes
of his entire labour-time, although, as previously, a part of this
labour-time, at first practically the entire surplus portion of it,
belongs to the landlord without compensation; except that the
landlord no longer directly receives this surplus-labour in its
natural form, but rather in the products’ natural form in which
it is realised. The burdensome, and according to the way in which
enforced labour is regulated, more or less disturbing interruption
by work for the landlord (see Buch I, Kap. VIII, 2)* (“Manufac¬
turer and Boyard ”) stops wherever rent in kind appears in pure
form, or at least it is reduced to a few short intervals during the
year, when a continuation of some corvee-labour side by side
with rent in kind takes place. The labour of the producer for
himself and his labour for the landlord are no longer palpably
separated by time and space. This rent in kind, in its pure form,
while it may drag fragments along into more highly developed
modes of production and production relations, still presupposes
for its existence a natural economy, i.e., that the conditions
of the economy are either wholly or for the overwhelming part
produced by the economy itself, directly replaced and reproduced
out of its gross product. It furthermore presupposes the combina¬
tion of rural home industry with agriculture. The surplus-product,
which forms the rent, is the product of this combined agricultural
and industrial family labour, no matter whether rent in kind
contains more or less of the industrial product, as is often the
case in the Middle Ages, or whether it is paid only in the form
of actual products of the land. In this form of rent it is by no
means necessary for rent in kind, which represents the surplus-
labour, to fully exhaust the entire surplus-labour of the rural
family. Compared with labour rent, the producer rather has more
room for action to gain time for surplus-labour whose product
shall belong to himself, as well as the product of his labour which
satisfies his indispensable needs. Similarly, this form will give

English edition: Ch. X, 2. — Ed.

796 transformation of surplus-profit into ground-rent

rise to greater differences in the economic position of the individ¬
ual direct producers. At least the possibility for such a differen¬
tiation exists, and the possibility for the direct producer to have
in turn acquired the means to exploit other labourers directly.
This, however, does not concern us here, since we are dealing
with rent in kind in its pure form; just as in general we cannot
enter into the endless variety of combinations wherein the vari¬
ous forms of rent may be united, adulterated and amalgamated.
The form of rent in kind, by being bound to a definite type of
product and production itself and through its indispensable com¬
bination of agriculture and domestic industry, through its almost
complete self-sufficiency whereby the peasant family supports
itself through its independence from the market and the movement
of production and history of that section of society lying outside
of its sphere, in short owing to the character of natural economy
in general, this form is quite adapted to furnishing the basis
for stationary social conditions as we see, e.g., in Asia. Here,
as in the earlier form of labour rent, ground-rent is the normal
form of surplus-value, and thus of surplus-labour, i.e., of the
entire excess labour which the direct producer must perform
gratis, hence actually under compulsion although this compul¬
sion no longer confronts him in the old brutal form — for the bene¬
fit of the owner of his essential condition of labour, the land.
The profit, if by erroneously anticipating we may thus call that
portion of the direct producer’s labour excess over his necessary
labour, which he retains for himself, has so little to do with deter¬
mining rent in kind, that this profit, on the contrary, grows up
behind the back of rent and finds its natural limit in the size
of rent in kind. The latter may assume dimensions which seriously
imperil reproduction of the conditions of labour, the means of
production themselves, rendering the expansion of production
more or less impossible and reducing the direct producers to the
physical minimum of means of subsistence. This is particularly
the case, when this form is met with and exploited by a conquer¬
ing commercial nation, e.g., the English in India.

IV. MONEY-RENT

By money-rent — as distinct from industrial and commercial
ground-rent based upon the capitalist mode of production, which
is but an excess over average profit — we here mean the ground-
rent which arises from a mere change in form of rent in kind, just
as the latter in turn is but a modification of labour rent. The direct

GENESIS OF CAPITALIST GROUND-RENT

797

producer here turns over instead of the product, its price to the
landlord (who may be either the state or a private individual).
An excess of products in their natural form no longer suffices;
it must be converted from its natural form into money-form.
Although the direct producer still continues to produce at least
the greater part of his means of subsistence himself, a certain por¬
tion of this product must now be converted into commodities,
must be produced as commodities. The character of the entire
mode of production is thus more or less changed. It loses its in¬
dependence, its detachment from social connection. The ratio
of cost of production, which now comprises greater or lesser ex¬
penditures of money, becomes decisive; at any rate, the excess
of that portion of gross product to be converted into money over
that portion which must serve, on the one hand, as means of
reproduction again, and, on the other, as means of direct sub¬
sistence, assumes a determining role. However, the basis of this
type of rent, although approaching its dissolution, remains the
same as that of rent in kind, which constitutes its point of de¬
parture. The direct producer as before is still possessor of the
land, either through inheritance or some other traditional right,
and must perform for his lord, as owner of his most essential
condition of production, excess corvee-labour, that is, unpaid
labour for which no equivalent is returned, in the form of a
surplus-product transformed into money. Ownership of the
conditions of labour as distinct from land, such as agricultural
implements and other goods and chattels, is transformed into the
property of the direct producer even under the earlier forms of
rent, first in fact, and then also legally, and even more so is this
the precondition for the form of money-rent. The transformation of
rent in kind into money-rent, taking place first sporadically and
then on a more or less national scale, presupposes a considerable
development of commerce, of urban industry, of commodity-
production in general, and thereby of money circulation. It
furthermore assumes a market-price for products, and that they
be sold at prices roughly approximating their values, which
need not at all be the case under earlier forms. In Eastern Europe
we may still partly observe this transformation taking place
under our very eyes. How unfeasible it can be without a certain
development of social labour productivity is proved by various
insuccessful attempts to carry it through under the Roman Em¬
pire, and by relapses into rent in kind after seeking to convert
at least the state tax portion of this rent into money-rent.
The same transitional difficulties are evidenced, e.g., in pre-

798 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

revolutionary France, when money-rent was combined with and
adulterated by, survivals of its earlier forms.

Money-rent, as a transmuted form of rent in kind, and in anti¬
thesis to it, is, nevertheless, the final form, and simultaneously the
form of dissolution of the type of ground-rent which we have
heretofore considered, namely ground-rent as the normal form of
surplus-value and of the unpaid surplus-labour to be performed
for the owner of the conditions of production. In its pure form,
this rent, like labour rent and rent in kind, represents no excess
over profit. It absorbs the profit, as it is understood. In so far
as profit arises beside it practically as a separate portion of excess
labour, money-rent like rent in its earlier forms still constitutes
the normal limit of such embryonic profit, which can only develop in
relation to the possibilities of exploitation, be it of one’s own
excess labour or that of another, which remains after the perform¬
ance of the surplus-labour represented by money-rent. Should
any profit actually arise along with this rent, then this profit
does not constitute the limit of rent, but rather conversely, the
rent is the limit of the profit. However, as already indicated,
money-rent is simultaneously the form of dissolution of the
ground-rent considered thus far, coinciding prima facie with
surplus-value and surplus-labour, i.e., ground -rent as the normal
and dominant form of surplus-value.

In its further development money-rent must lead — aside from
all intermediate forms, e.g., the small peasant tenant farmer —
either to the transformation of land into peasants’ freehold, or
to the form corresponding to the capitalist mode of production,
that is, to rent paid by the capitalist tenant farmer.

With money-rent prevailing, the traditional and customary
legal relationship between landlord and subjects who possess and
cultivate a part of the land, is necessarily turned into a pure
money relationship fixed contractually in accordance with the
rules of positive law. The possessor engaged in cultivation thus
becomes virtually a mere tenant. This transformation serves on
the one hand, provided other general production relations per¬
mit, to expropriate more and more the old peasant possessors
and to substitute capitalist tenants in their stead. On the other
hand, it leads to the former possessor buying himself free from
his rent obligation and to his transformation into an independent
peasant with complete ownership of the land he tills. The trans¬
formation of rent in kind into money-rent is furthermore not
only inevitably accompanied, but even anticipated, by the for¬
mation of a class of propertyless day-labourers, who hire them-

GENESIS OF CAPITALIST GROUND-RENT

799

selves out for money. During their genesis, when this new class
appears but sporadically, the custom necessarily develops among
the more prosperous peasants subject to rent payments of exploit¬
ing agricultural wage-labourers for their own account, much as
in feudal times, when the more well-to-do peasant serfs them¬
selves also held serfs. In this way, they gradually acquire the
possibility of accumulating a certain amount of wealth and
themselves becoming transformed into future capitalists. The old
self-employed possessors of land themselves thus give rise to
a nursery school for capitalist tenants, whose development is
conditioned by the general development of capitalist production
beyond the bounds of the country-side. This class shoots up very
rapidly when particularly favourable circumstances come to its
aid, as in England in the 16th century, where the then progres¬
sive depreciation of money enriched them under the customary
long leases at the expense of the landlords.

Furthermore: as soon as rent assumes the form of money-rent,
and thereby the relationship between rent-paying peasant and
landlord becomes a relationship fixed by contract — a develop¬
ment which is only possible generally when the world-market,
commerce and manufacture have reached a certain relatively
high level — the leasing of land to capitalists inevitably also
makes its appearance. The latter hitherto stood beyond the rural
limits and now carry over to the country-side and agriculture the
capital acquired in the cities and with it the capitalist mode of
operation developed — i.e., creating a product as a mere com¬
modity and solely as a means of appropriating surplus-value. This
form can become the general rule only in those countries which
dominate the world-market in the period of transition from the
feudal to the capitalist mode of production. When the capitalist
tenant farmer steps in between landlord and actual tiller of the
soil, all relations which arose out of the old rural mode of produc¬
tion are torn asunder. The farmer becomes the actual commander
of these agricultural labourers and the actual exploiter of their
surplus-labour, whereas the landlord maintains a direct relation¬
ship, and indeed simply a money and contractual relationship,
solely with this capitalist tenant. Thus, the nature of rent is also
transformed, not merely in fact and by chance, as occurred in
part even under earlier forms, but normally, in its recognised and
prevailing form. From the normal form of surplus-value and
surplus-labour, it descends to a mere excess of this surplus-labour
over that portion of it appropriated by the exploiting capital¬
ist in the form of profit; just as the total surplus-labour, profit

800 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

and excess over profit, is extracted directly by him, collected in
the form of the total surplus-product, and turned into cash. It is
only the excess portion of this surplus-value which is extracted by
him from the agricultural labourer by direct exploitation, by
means of his capital, which he turns over to the landlord as rent.
How much or how little he turns over to the latter depends, on the
average, upon the limits set by the average profit which is realised
by capital in the non-agricultural spheres of production, and by
the prices of non-agricultural production regulated by this average
profit. From a normal form of surplus-value and surplus-labour,
rent has now become transformed into an excess over that portion
of the surplus-labour claimed in advance by capital as its legiti¬
mate and normal share, and characteristic of this particular sphere
of production, the agricultural sphere of production. Profit, in¬
stead of rent, has now become the normal form of surplus-value
and rent still exists solely as a form, not of surplus-value in gen¬
eral, but of one of its offshoots, surplus-profit, which assumes an
independent form under particular circumstances. It is not neces¬
sary to elaborate the manner in which a gradual transformation in
the mode of production itself corresponds to this transformation.
This already follows from the fact that it is normal for the capi¬
talist tenant farmer to produce agricultural products as commodi¬
ties, and that, while formerly only the excess over his means of
subsistence was converted into commodities, now but a relatively
insignificant part of these commodities is directly used by him as
means of subsistence. It is no longer the land, but rather capital,
which has now brought even agricultural labour under its direct
sway and productiveness.

The average profit and the price of production regulated thereby
are formed outside of relations in the country-side and within the
sphere of urban trade and manufacture. The profit of the rent-
paying peasant does not enter into it as an equalising factor, for
his relation to the landlord is not a capitalist one. In so far as he
makes profit, i.e., realises an excess above his necessary means
of subsistence, either by his own labour or through exploiting
other people’s labour, it is done behind the back of the normal
relationship, and other circumstances being equal, the size of
this profit does not determine rent, but on the contrary, it is
determined by the rent as its limit. The high rate of profit in the
Middle Ages is not entirely due to the low composition of capital,
in which the variable component invested in wages predomi¬
nates. It is due to swindling on the land, the appropriation of a
portion of the landlord 's rent and of the income of his vassals.

GENESIS OF CAPITALIST GROUND-RENT

801

If the country-side exploits the town politically in the Middle
Ages, wherever feudalism has not been broken down by excep¬
tional urban development — as in Italy, the town, on the other
hand, exploits the land economically everywhere and without
exception, through its monopoly prices, its system of taxation,
its guild organisation, its direct commercial fraudulence and
its usury.

One might imagine that the mere appearance of the capitalist
farmer in agricultural production would prove that the price of
agricultural products, which from time immemorial have paid
rent in one form or another, must be higher, at least at the time
of this appearance, than the prices of production of manufacture
whether it be because the price of such agricultural products has
reached a monopoly price level, or has risen as high as the value
of the agricultural products, and their value actually is above the
price of production regulated by the average profit. For were this
not so, the capitalist farmer could not at all realise, at the exist¬
ing prices of agricultural produce, first the average profit out of
the price of these products, and then pay out of the same price
an excess above this profit in the form of rent. One might con¬
clude from this that the general rate of profit, which guides the
capitalist farmer in his contract with the landlord, has been formed
without including rent, and, therefore, as soon as it assumes
a regulating role in agricultural production, it finds this excess
at hand and pays it to the landlord. It is in this traditional man¬
ner that, for instance, Herr Rodbertus explains the matter.*
But:

First. This appearance of capital as an independent and leading
force in agriculture does not take place all at once and generally,
but gradually and in particular lines of production. It encompasses
at first, not agriculture proper, but such branches of production as
cattle-breeding, especially sheep-raising, whose principal product,
wool, offers at the early stages a constant excess of market-price
over price of production during the rise of industry, and this does
not level out until later. Thus in England during the 16th century.

Secondly. Since this capitalist production appears at first but
sporadically, the assumption cannot be disputed that it first ex¬
tends only to such land categories as are able, through their

* J. Rodbertu9, Sociale Briefe an von Klrchmann, Dritler Brief : Wider-
legung der Ricardo' schen Lehre von der Grundrente und Begrundung einer
neuen Rententheoric. See also K. Marx, Theorien uber den Mehrwert. 2. Tell,
1957. pp. 3-106, 142-54.— Ed.

802 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

particular fertility, or their exceptionally favourable location, to
generally pay a differential rent.

Thirdly. Let us even assume that at the time this mode of pro¬
duction appeared — and this indeed presupposes an increasing pre¬
ponderance of urban demand — the prices of agricultural products
were higher than the price of production, as was doubtless the case
in England during the last third of the 17th century. Nevertheless,
as soon as this mode of production has somewhat extricated itself
from the mere subordination of agriculture to capital, and as soon
as agricultural improvement and the reduction of production
costs, which necessarily accompany its development, have taken
place, the balance will be restored by a reaction, a fall in the price
of agricultural produce, as happened in England in the first half
of the 18th century.

Rent, thus, as an excess over the average profit cannot be ex¬
plained in this traditional way. Whatever may be the existing
historical circumstances at the time rent first appears, once it has
struck root it cannot exist except under the modern conditions
earlier described.

Finally, it should be noted in the transformation of rent in kind
into money-rent that along with it capitalised rent, or the price of
land, and thus its alienability and alienation become essential fac¬
tors, and that thereby not only can the former peasant subject
to payment of rent be transformed into an independent peasant
proprietor, but also urban and other moneyed people can buy real
estate in order to lease it either to peasants or capitalists and thus
enjoy rent as a form of interest on their capital so invested; that,
therefore, this circumstance likewise facilitates the transforma¬
tion of the former mode of exploitation, the relation between
owner and actual cultivator of the land, and of rent itself

V. METAYAGE AND PEASANT PROPRIETORSHIP
OF LAND PARCELS

We have now arrived at the end of our elaboration of ground-
rent.

In all these forms of ground-rent, whether labour rent, rent in
kind, or money-rent (as merely a changed form of rent in kind),
the one paying rent is always supposed to be the actual cultivator
and possessor of the land, whose unpaid surplus-labour passes
directly into the hands of the landlord. Even in the last form,
money-rent in so far as it is “pure, ” i.e., merely a changed form of
rent in kind — this is not only possible, but actually takes place.

GENESIS OF CAPITALIST GROUND-RENT

803

As a transitory form from tho original form of rent to capitalist
rent, we may consider the metayer system, or share-cropping, un¬
der which the manager (farmer) furnishes labour (his own or an¬
other’s), and also a portion of working capital, and the landlord
furnishes, aside from land, another portion of working capital
(e.g., cattle), and the product is divided between tenant and land¬
lord in definite proportions which vary from country to country.
On the one hand, the farmer hero lacks sufficient capital required
for complete capitalist management. On the other hand, the share
here appropriated by the landlord does not bear the pure form of
rent. It may actually include interest on the capital advanced by
him and an excess rent. It may also absorb practically the entire
surplus-labour of the farmer, or leave him a greater or smaller
portion of this surplus-labour. But, essentially, rent no longer
appears here as the normal form of surplus-value in general. On
the one hand, the sharecropper, whether he employs his own
or another’s labour, is to lay claim to a portion of the product
not in his capacity as labourer, but as possessor of part of the
instruments of labour, as his own capitalist. On the other hand,
the landlord claims his share not exclusively on the basis of his
landownership, but also as lender of capital. 443

A survival of the old communal ownership of land, which had
endured after the transition to independent peasant farming, e.g.,
in Poland and Rumania, served there as a subterfuge for effecting
a transition to the lower forms of ground-rent. A portion of the
land belongs to the individual peasant and is tilled independ¬
ently by him. Another portion is tilled in common and creates
a surplus-product, which serves partly to cover community ex¬
penses, partly as a reserve in cases of crop failure, etc. These
last two parts of the surplus-product, and ultimately the entire
surplus-product including the land upon which it has been grown,
are more and more usurped by state officials and private indi¬
viduals, and thus the originally free peasant proprietors, whose
obligation to till this land in common is maintained, are trans¬
formed into vassals subject either to corvee-labour or rent in kind,
while the usurpers of common land are transformed into owners,
not only of the usurped common lands, but even the very lands
of the peasants themselves.

ua Cf. Buret [Cours d' economie politique, Bruxelles, 1842. — Ed. ], Tocque-
ville [ L'ancien regime et la revolution, Paris, 1856. — Ed.], Sismondi
[Nouveaux principes d'economie politique. — Seconds Edition, Tome I, Paris,
1827.— Ed. ].

804 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

We need not further investigate slave economy proper (which
likewise passes through a metamorphosis from the patriarchal
system mainly for home use to the plantation system for the
world-market) nor the management of estates under which the
landlords themselves are independent cultivators, possessing all
instruments of production, and exploiting the labour of free or
unfree bondsmen, who are paid either in kind or money. Landlord
and owner of the instruments of production, and thus the direct
exploiter of labourers included among these elements of produc¬
tion, are in this case one and the same person. Rent and profit
likewise coincide then, there occurring no separation of the
different forms of surplus-value. The entire surplus-labour of the
labourers, which is manifested here in the surplus-product, is
extracted from them directly by the owner of all instruments of
production, to which belong the land and, under the original
form of slavery, the immediate producers themselves. Where
the capitalist outlook prevails, as on American plantations, this
entire surplus-value is regarded as profit; where neither the capi¬
talist mode of production itself exists, nor the corresponding
outlook has been transferred from capitalist countries, it appears
as rent. At any rate, this form presents no difficulties. The in¬
come of the landlord, whatever it may be called, the available
surplus-product appropriated by him, is here the normal and
prevailing form, whereby the entire unpaid surplus-labour is
directly appropriated, and landed property forms the basis of
such appropriation.

Further, proprietorship of land parcels. The peasant here is
simultaneously the free owner of his land, which appears as his
principal instrument of production, the indispensable field of em¬
ployment for his labour and his capital. No lease money is paid
under this form. Rent, therefore, does not appear as a separate
form of surplus-value, although in countries in which otherwise
the capitalist mode of production is developed, it appears as a
surplus-profit compared with other lines of production; but as
surplus-profit which, like all proceeds of his labour in general,
accrues to the peasant.

This form of landed property presupposes, as in the earlier older
forms, that the rural population greatly predominates numerically
over the town population, so that, even if the capitalist mode of
production otherwise prevails, it is but relatively little developed ,
and thus also in the other lines of production the concentration of
capital is restricted to narrow limits and a fragmentation of capi¬
tal predominates. In the nature of things, the greater portion of

GENESIS OP CAPITALIST GROUND-RENT

805

agricultural produce must be consumed as direct means o! subsist¬
ence by the producers themselves, the peasants, and only the
excess above that will find its way as commodities into urban
commerce. No matter how the average market-price of agricultural
products may here be regulated, differential rent, an excess por¬
tion of commodity-prices from superior or more favourably located
land, must evidently exist here much as under the capitalist
mode of production. This differential rent exists, even where
this form appears under social conditions, under which no general
market-prico has as yet been developed; it appears then in the
excess surplus-product. Only then it flows into the pockets of
the peasant whose labour is realised under more favourable
natural conditions. The assumption here is generally to be made
that no absolute rent exists, i.e., that the worst soil does not
pay any rent — precisely under this form where the price of land
enters as a factor in the peasant’s actual cost of production
whether because in the course of this form’s further de¬
velopment either the price of land has been computed at a
certain money-value, in dividing up an inheritance, or, during
the constant change in ownership of an entire estate, or of its
component parts, the land has been bought by the cultivator
himself, largely by raising money on mortgage; and, therefore,
where the price of land, representing nothing more than capi¬
talised rent, is a factor assumed in advance, and where rent thus
seems to exist independently of any differentiation in fertility
and location of the land. For, absolute rent presupposes either
realised excess in product value above its price of production, or a
monopoly price exceeding the value of the product. But since agri¬
culture hero is carried on largely as cultivation for direct subsist¬
ence, and the land exists as an indispensable field of employment
for the labour and capital of the majority of the population, the
regulating market-price of the product will reach its value only
under extraordinary circumstances. But this value will, gener¬
ally, be higher than its price of production owing to the preponder¬
ant element of living labour, although this excess of value over
price of production will in turn be limited by the low composition
even of non-agricultural capital in countries with an economy com¬
posed predominantly of land parcels. For the peasant owning a
parcel, the limit of exploitation is not set by the average profit of
capital, in so far as he is a small capitalist; nor, on the other hand,
by the necessity of rent, in so far as he is a landowner. The abso¬
lute limit for him as a small capitalist is no more than the wages
he pays to himself, after deducting his actual costs. So long as the

806 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

price of the product covers these wages, he will cultivate his land,
and often at wages down to a physical minimum. As for his ca¬
pacity as land proprietor, the barrier of ownership is eliminated
for him, since it can make itself felt only vis-a-vis a capital (in¬
cluding labour) separated from landownership, by erecting an
obstacle to the investment of capital. It is true, to be sure, that
interest on the price of land — which generally has to be paid
to still another individual, the mortgage creditor — is a barrier.
But this interest can be paid precisely out of that portion of
surplus-labour which would constitute profit under capitalist
conditions. The rent anticipated in the price of land and in the in¬
terest paid for it can therefore be nothing but a portion of the
peasant’s capitalised surplus-labour over and above the labour
indispensable for his subsistence, without this surplus-labour
being realised in a part of the commodity-value equal to the en¬
tire average profit, and still less in an excess above the surplus-
labour realised in the average profit, i.e., in a surplus-profit.
The rent may be a deduction from the average profit, or even
the only portion of it which is realised. For the peasant parcel
holder to cultivate his land, or to buy land for cultivation, it is
therefore not necessary, as under the normal capitalist mode of
production, that the market-price of the agricultural products rise
high enough to afford him the average profit, and still less a fixed
excess above this average profit in the form of rent. It is not
necessary, therefore, that the market-price rise, either up to the
value or the price of production of his product. This is one of the
reasons why grain prices are lower in countries with predominant
small peasant land proprietorship than in countries with a capi¬
talist mode of production. One portion of the surplus-labour of
the peasants, who work under the least favourable conditions, is
bestowed gratis upon society and does not at all enter into the
regulation of price of production or into the creation of value
in general. This iower price is consequently a result of the
producers’ poverty and by no means of their labour productivity.

This form of free self-managing peasant proprietorship of land
parcels as the prevailing, normal form constitutes, on the one
hand, the economic foundation of society during the best periods
of classical antiquity, and on the other hand, it is found among
modern nations as one of the forms arising from the dissolution
of feudal landownership. Thus, the yeomanry in England, the
peasantry in Sweden, the French and West German peasants.
We do not include colonies here, since the independent peasant
there develops under different conditions.

GENESIS OF CAPITALIST GROUND-RENT

807

The free ownership of the self-managing peasant is evidently the
most normal form of landed property for small-scale operation,
i.e., for a mode of production, in which possession of the land is
a prerequisite for the labourer’s ownership of the product of his
own labour, and in which the cultivator, be he free owner or vas¬
sal, always must produce his own means of subsistence independ¬
ently, as an isolated labourer with his family. Ownership of the
land is as necessary for full development of this mode of produc¬
tion as ownership of tools is for free development of handicraft
production. Here is the basis for the development of personal
independence. It is a necessary transitional stage for the develop¬
ment of agriculture itself. The causes which bring about its down¬
fall show its limitations. These are: Destruction of rural domestic
industry, which forms its normal supplement as a result of the
development of large-scale industry; a gradual impoverishment
and exhaustion of the soil subjected to this cultivation; usur¬
pation by big landowners of the common lands, which constitute
the second supplement of the management of land parcels every¬
where and which alone enable it to raise cattle; competition,
either of the plantation system or large-scale capitalist agricul¬
ture. Improvements in agriculture, which on the one hand cause
a fall in agricultural prices and, on the other, require greater
outlays and more extensive material conditions of production,
also contribute towards this, as in England during the first half
of the 18th century.

Proprietorship of land parcels by its very nature excludes the
development of social productive forces of labour, social forms of
labour, social concentration of capital, large-scale cattle-raising,
and the progressive application of science.

Usury and a taxation system must impoverish it everywhere.
The expenditure of capital in the price of the land withdraws
this capital from cultivation. An infinite fragmentation of means
of production, and isolation of the producers themselves. Mon¬
strous waste of human energy. Progressive deterioration of condi¬
tions of production and increased prices of means of production —
an inevitable law of proprietorship of parcels. Calamity of season¬
al abundance for this mode of production.45

One of the specific evils of small-scale agriculture where it is
combined with free landownership arises from the cultivator’s

45 See the speech from the throne of the King of France in Tooke. [New-
march, A History of Prices, and of the State of the Circulation, during the
nine years 1848-66, Vol. VI, London, 1857, pp. 29-30. — Ed. ]

808 TRANSFORMATION OF SURPLUS-PROFIT INTO GROUND-RENT

investing capital in the purchase of land. (The same applies also
to the transitory form, in which the big landowner invests capital,
first, to buy land, and second, to manage it as his own tenant
farmer.) Owing to the changeable nature which the land here
assumes as a mere commodity, the changes of ownership increase,48
so that the land, from the peasant’s viewpoint, enters anew as
an investment of capital with each successive generation and
division of estates, i.e., it becomes land purchased by him. The
price of land here forms a weighty element of the individual
unproductive costs of production or cost-price of the product
for the individual producer.

The price of land is nothing but capitalised and therefore antic¬
ipated rent. If capitalist methods are employed by agriculture, so
that the landlord receives only rent, and the farmer pays nothing
for land except this annual rent, then it is evident that the capital
invested by the landowner himself in purchasing the land consti¬
tutes indeed an interest-bearing investment of capital for him, but
bas absolutely nothing to do with capital invested in agriculture
itself. It forms neither a part of the fixed, nor of the circulating,
capital employed here47; it merely secures for the buyer a claim
to receive annual rent, but has absolutely nothing to do with the
production of the rent itself. The buyer of land just pays his capi¬
tal out to the one who sells the land, and the seller in return relin¬
quishes his ownership of the land. Thus this capital no longer
exists as the capital of the purchaser; he no longer has it; therefore
it does not belong to the capital which he can invest in any way in
the land itself. Whether he bought the land dear or cheap, or
whether he received it for nothing, alters nothing in the capital
invested by the farmer in his establishment, and changes nothing
in the rent, but merely alters the question whether it appears to
him as interest or not, or as higher or lower interest respectively.

48 See Mourner [De V agriculture era France, Paris, 1846. — ] and Rubi-
chon [Du mecanisme de la toclele era France et era Angleterre, Paris, 1837. — Ed.].

47 Dr. H. Maron (Extensa? oder Intenslv?) [no further information given
about this pamphlet] starts from the false assumption of the adversaries he
opposes. He assumes that capital invested in the purchase of land is “in¬
vestment capital,” and then engages in a controversy about the respective
definitions of investment capital and working capital, that is, fixed and
circulating capital. His wholly amateurish conceptions of capital in general,
which may be excused incidentally in one who is not an economist in view
of the state of German political economy, conceal from him that this capital
is neither investment nor working capital, any more than the capital which
someone invests at the Stock Exchange in purchasing stocks or government
securities, and which, for him, represents a personal investment of capital.
Is “invested” in any branch of production.

GENESIS OF CAPITALIST GROUND-RENT

809

Take, for instance, the slave economy. The price paid for a slave
is nothing but the anticipated and capitalised surplus-value or
profit to be wrung out of the slave. But the capital paid for the
purchase of a slave does not belong to the capital by means of
which profit, surplus-labour, is extracted from him. On the con¬
trary. It is capital which the slave-holder has parted with, it is a
deduction from the capital which he has available for actual
production. It has ceased to exist for him, just as capital invested
in purchasing land has ceased to exist for agriculture. The best
proof of this is that it does not reappear for the slave-holder or
the landowner except when he, in turn, sells his slaves or land.
But then the same situation prevails for the buyer. The fact
that he has bought the slave does not enable him to exploit the
slave without further ado. He is only able to do so when he
invests some additional capital in the slave economy itself.

The same capital does not exist twice, once in the hands of the
seller, and a second time in the hands of the buyer of the land. It
passes from the hands of the buyer to those of the seller, and there
the matter ends. The buyer now no longer has capital, but in its
stead a piece of land. The circumstance that the rent produced by
a real investment of capital in this land is calculated by the new
landowner as interest on capital which he has not invested in the
land, but given away to acquire the land, does not in the least
alter the economic nature of the land factor, any more than the
circumstance that someone has paid £1,000 for 3% consols has
anything to do with the capital out of whose revenue the interest
on the national debt is paid.

In fact, the money expended in purchasing land, like that in
purchasing government bonds, is merely capital in itself, just as
any value sum is capital in itself, potential capital, on the basis
of the capitalist mode of production. What is paid for land, like
that for government bonds or any other purchased commodity, is a
sum of money. This is capital in itself, because it can be converted
into capital. It depends upon the use put to it by the seller whether
the money obtained by him is really transformed into capital or
not. For the buyer, it can never again function as such, no more
than any other money which he has definitely paid out. It figures
in his accounts as interest-bearing capital, because he considers
the income, received as rent from the land or as interest on state
indebtedness, as interest on the money which the purchase of the
claim to this revenue has cost him. He can only realise it as capital
through resale. But then another, the new buyer, enters the same
relationship maintained by the former, and the money thus

810 transformation of surplus-profit into ground-rent

expended cannot be transformed into actual capital for the expend-
er through any change of hands.

In the case of small landed property the illusion is fostered still
more that land itself possesses value and thus enters as capita]
into the price of production of the product, much as machines or
raw materials. But we have seen that rent, and therefore capital¬
ised rent, the price of land, can enter as a determining factor into
the price of agricultural products in only two cases. First, when as
a consequence of the composition of agricultural capital — a capi¬
tal which has nothing to do with the capital invested in purchasing
land — the value of the products of the soil is higher than their
price of production, and market conditions enable the landlord to
realise this difference. Second, when there is a monopoly price.
And both are least of all the case under the management of land
parcels and small landownership because precisely here produc¬
tion to a large extent satisfies the producers’ own wants and is
carried on independently of regulation by the average rate of
profit. Even where cultivation of land parcels is conducted upon
leased land, the lease money comprises, far more so than under
any other conditions, a portion of the profit and even a deduction
from wages; this money is then only a nominal rent, not rent
as an independent category as opposed to wages and profit.

The expenditure of money-capital for the purchase of land, then,
is not an investment of agricultural capital. It is a decrease pro
tanto in the capital which small peasants can employ in their own
sphere of production. It reduces pro tanto the size of their means
of production and thereby narrows the economic basis of reproduc¬
tion. It subjects the small peasant to the money-lender, since
credit proper occurs but rarely in this sphere in general. It is a
hindrance to agriculture, even where such purchase takes place
in the case of large estates. It contradicts in fact the capitalist
mode of production, which is on the whole indifferent to whether
the landowner is in debt, no matter whether he has inherited or
purchased his estate. The nature of management of the leased
estate itself is not altered whether the landowner pockets the
rent himself or whether he must pay it out to the holder of his
mortgage.

We have seen that, in the case of a given ground-rent, the price
of land is regulated by the interest rate. If the rate is low, then the
price of land is high, and vice versa. Normally, then, a high price
of land and a low interest rate should go hand in hand, so that if
the peasant paid a high price for the land in consequence of a low
interest rate, the same low rate of interest should also secure his

GENESIS OF CAPITALIST GROUND-RENT

811

working capital for him on easy credit terms. But in reality, things
turn out differently when peasant proprietorship of land parcels
is the prevailing form. In the first place, the general laws of credit
are not adapted to the farmer, since these laws presuppose a capi¬
talist as the producer. Secondly, where proprietorship of land
parcels predominates — we are not referring to colonies here— and
the small peasant constitutes the backbone of the nation, the for¬
mation of capital, i.e., social reproduction, is relatively weak,
and still weaker is the formation of loanable money-capital, in
the sense previously elaborated. This presupposes the concen¬
tration and existence of a class of idle rich capitalists (Massie).*
Thirdly, here where the ownership of the land is a necessary
condition for the existence of most producers, and an indispen¬
sable field of investment for their capital, the price of land is
raised independently of the interest rate, and often in inverse
ratio to it, through the preponderance of the demand for landed
property over its supply. Land sold in parcels brings a far higher
price in such a case than when sold in large tracts, because here
the number of small buyers is large and that of large buyers is small
(Bandes Noires,** Rubichon; Newman***). For all these reasons,
the price of land rises here with a relatively high rate of interest.
The relatively low interest, which the peasant derives here from
the outlay of capital for the purchase of land (Mounier), corre¬
sponds here, on the other side, to the high usurious interest rate
which he himself has to pay to his mortgage creditors. The Irish
system bears out the same thing, only in another form.

The price of land, this element foreign to production in itself,
may therefore rise here to such a point that it makes production
impossible (Dombasle).

The fact that the price of land plays such a role, that purchase
and sale, the circulation of land as a commodity, develops to this
degree, is practically a result of the development of the capital¬
ist mode of production in so far as a commodity is here the gen¬
eral form of all products and all instruments of production. On
the other hand, this development takes place only where the capi¬
talist mode of production has a limited development and does not
unfold all of its peculiarities, because this rests precisely upon the
fact that agriculture is no longer, or not yet, subject to the

* [Massie] An Essay on the Governing Causes of the Natural Rate of In¬
terest, London, 1750, pp. 23-24. — Ed.

** Associations of profiteers. — Ed.

*** Newman, Lectures on Political Economy, London, 1851, pp. 180-81.
— Ed.

812 TRANSFORMATION OF SURPLUS-PROFIT INTO CROUND-RENT

capitalist mode of production, but rather to one handed down from
extinct forms of society. The disadvantages of the capitalist
mode of production, with its dependence of the producer upon
the money-price of his product, coincide here therefore with the
disadvantages occasioned by the imperfect development of the
capitalist mode of production. The peasant turns merchant and
industrialist without the conditions enabling him to produce
his products as commodities.

The conflict between the price of land as an element in the pro¬
ducers’ cost-price and no element in the price of production (even
though the rent enters as a determining factor into the price of the
agricultural product, the capitalised rent, which is advanced for
20 years or more, by no means enters as a determinant) is but one
of the forms manifesting the general contradiction between pri¬
vate landownership and a rational agriculture, the normal social
utilisation of the soil. But on the other hand, private landowner¬
ship, and thereby expropriation of the direct producers from the
land — private landownership by the one, which implies lack of
ownership by others — is the basis of the capitalist mode of pro¬
duction.

Here, in small-scale agriculture, the price of land, a form and
result of private landownership, appears as a barrier to produc¬
tion itself. In large-scale agriculture, and large estates operating
on a capitalist basis, ownership likewise acts as a barrier, because
it limits the tenant farmer in his productive investment of capital,
which in the final analysis benefits not him, but the landlord.
In both forms, exploitation and squandering of the vitality
of the soil (apart from making exploitation dependent upon
the accidental and unequal circumstances of individual producers
rather than the attained level of social development) takes the
place of conscious rational cultivation of the soil as eternal com¬
munal property, an inalienable condition for the existence and
reproduction of a chain of successive generations of the human
race. In the case of small property, this results from the lack of
means and knowledge of applying the social labour productivity.
In the case of large property, it results from the exploitation of
such means for the most rapid enrichment of farmer and proprie¬
tor. In the case of both through dependence on the market-price.

All critique of small landed property resolves itself in the final
analysis into a criticism of private ownership as a barrier and
hindrance to agriculture. And similarly all counter-criticism of
large landed property. In either case, of course, we leave aside
all secondary political considerations. This barrier and hindrance,

GENESIS OF CAPITALIST GROUND-RENT

813

which are erected by all private landed property vis-a-vis agri¬
cultural production and the rational cultivation, maintenance
and improvement of the soil itself, develop on both sides merely
in different forms, and in wrangling over the specific forms of
this evil its ultimate cause is forgotten.

Small landed property presupposes that the overwhelming
majority of the population is rural, and that not social, but iso¬
lated labour predominates; and that, therefore, under such con¬
ditions wealth and development of reproduction, both of its
material and spiritual prerequisites, are out of the question,
and thereby also the prerequisites for rational cultivation. On
the other hand, large landed property reduces the agricultural
population to a constantly falling minimum, and confronts it
with a constantly growing industrial population crowded together
in large cities. It thereby creates conditions which cause an ir¬
reparable break in the coherence of social interchange prescribed
by the natural laws of life. As a result, the vitality of the soil
is squandered, and this prodigality is carried by commerce far
beyond the borders of a particular state (Liebig).*

While small landed property creates a class of barbarians stand¬
ing halfway outside of society, a class combining all the crude¬
ness of primitive forms of society with the anguish and misery of
civilised countries, large landed property undermines labour-
power in the last region, where its prime energy seeks refuge and
stores up its strength as a reserve fund for the regeneration of the
vital force of nations — on the land itself. Large-scale industry
and large-scale mechanised agriculture work together. If origi¬
nally distinguished by the fact that the former lays waste and de¬
stroys principally labour-power, hence the natural force of human
beings, whereas the latter more directly exhausts the natural
vitality of the soil, they join hands in the further course of devel¬
opment in that the industrial system in the country-side also
enervates the labourers, and industry and commerce on their
part supply agriculture with the means for exhausting the soil.

* Liebig, Die Chemie in ihrer A nwendung auf A gricultur und Physiologte,
Braunschweig, 1862.— Ed.

PART VII

REVENUES AND THEIR SOURCES

CHAPTER XLVIII
THE TRINITY FORMULA

140

Capital — profit (profit of enterprise plus interest), land —
ground-rent, labour — wages, this is the trinity formula which
comprises all the secrets of the social production process.

Furthermore, since as previously* demonstrated interest
appears as the specific characteristic product of capital and profit
of enterprise on the contrary appears as wages independent of
capital, the above trinity formula reduces itself more specifi¬
cally to the following:

Capital— interest, land— ground-rent, labour— wages, where
profit, the specific characteristic form of surplus-value belonging
to the capitalist mode of production, is fortunately eliminated.

On closer examination of this economic trinity, we find the
following:

First, the alleged sources of the annually available wealth
belong to widely dissimilar spheres and are not at all analogous
with one another. They have about the same relation to each
other as lawyer’s fees, red beets and music.

Capital, land, labour! However, capital is not a thing, but
rather a definite social production relation, belonging to a defi¬
nite historical formation of society, which is manifested in a
thing and lends this thing a specific social character. Capital is
not the sum of the material and produced means of production.
Capital is rather the means of production transformed into capi¬
tal, which in themselves are no more capital than gold or silver

48 The following three fragments were found in different parts of the
manuscript for Part VI.— F. E.

* Present edition: Ch. XXIII.— Ed.

TRINITY FORMULA

815

in itself is money. It is the means of production monopolised
by a certain section of society, confronting living labour-power
as products and working conditions rendered independent of
this very labour-power, which are personified through this anti¬
thesis in capital. It is not merely the products of labourers turned
into independent powers, products as rulers and buyers of their
producers, but rather also the social forces and the future ...
[? illegible]* form of this labour, which confront the labourers
as properties of their products. Here, then, we have a definite
and, at first glance, very mystical, social form, of one of the
factors in a historically produced social production process.

And now alongside of this we have the land, inorganic nature
as such, rudis indigestaque moles,** in all its primeval wildness.
Value is labour. Therefore surplus-value cannot be earth. Absolute
fertility of the soil effects nothing more than the following:
a certain quantity of labour produces a certain product — in
accordance with the natural fertility of the soil. The difference
in soil fertility causes the same quantities of labour and capital,
hence the same value, to be manifested in different quantities of
agricultural products; that is, causes these products to have
different individual values. The equalisation of these individual
values into market-values is responsible for the fact that the
“advantages of fertile over inferior soil ... are transferred from
the cultivator or consumer to the landlord”. (Ricardo, Prin¬
ciples, London, 1821, p. 62.)

And finally, as third party in this union, a mere ghost —
“the” Labour, which is no more than an abstraction and taken
by itself does not exist at all, or, if we take ... [illegible]***,
the productive activity of human beings in general, by which
they promote the interchange with Nature, divested not only
of every social form and well-defined character, but even in its
bare natural existence, independent of society, removed from
all societies, and as an expression and confirmation of life which
the still non-social man in general has in common with the one
who is in any way social.

* A later collation with the manuscript showed that the text reads as
follows: “die Gesellschaftlichen Krafte und Zusammenhangende Form dieser
Arbeit” (the social forces of their labour and socialised form of this labour).
—Ed.

** Ovid, Metamorphoses, Book I, 7.— Ed.

As has been established by later reading of the manuscript, it reads
here: “wenn wir das Gemeinte nehmen” (if we take that which is behind
it).— Ed.

816

REVENUES AND THEIR SOURCES

Capital — interest; landed property, private ownership of the
Earth, and, to be sure, modern and corresponding to the capital¬
ist mode of production — rent; wage-labour — wages. The connec¬
tion between the sources of revenue is supposed to be represented
in this form. Wage-labour and landed property, like capital, are
historically determined social forms; one of labour, the other of
monopolised terrestrial globe, and indeed both forms correspond¬
ing to capital and belonging to the same economic formation of
society.

The first striking thing about this formula is that side by side
with capital, with this form of an element of production belong¬
ing to a definite mode of production, to a definite historical
form of social process of production, side by side with an element
of production amalgamated with and represented by a definite
social form are indiscriminately placed: the land on the one
hand and labour on the other, two elements of the real labour-
process, which in this material form are common to all modes
of production, which are the material elements of every process
of production and have nothing to do with its social form.

Secondly. In the formula: capital— interest, land— ground-rent,
labour— wages, capital, land and labour appear respectively
as sources of interest (instead of profit), ground-rent and wages,
as their products, or fruits; the former are the basis, the latter
the consequence, the former are the cause, the latter the effect;
and indeed, in such a manner that each individual source is relat¬
ed to its product as to that which is ejected and produced by it.
All the proceeds, interest (instead of profit), rent, and wages,
are three components of the value of the products, i.e., generally
speaking, components of value or expressed in money, certain
money components, price components. The formula: capital —
interest is now indeed the most meaningless formula of capital,
but still one of its formulas. But how should land create value,
i.e., a socially defined quantity of labour, and moreover that
particular portion of the value of its own products which forms
the rent? Land, e.g., takes part as an agent of production in creat¬
ing a use-value, a material product, wheat. But it has nothing to
do with the production of the value of wheat. In so far as value is
represented by wheat, the latter is merely considered as a definite
quantity of materialised social labour, regardless of the particu¬
lar substance in which this labour is manifested or of the particu¬
lar use-value of this substance. This nowise contradicts that

TRINITY FORMULA

817

1) other circumstances being equal, the cheapness or dearness of
wheat depends upon the productivity of the soil. The productiv¬
ity of agricultural labour is dependent on natural conditions,
and the same quantity of labour is represented by more or fewer
products, use-values, in accordance with such productivity. How
large the quantity of labour represented in one bushel of wheat
depends upon the number of bushels yielded by the same quantity
of labour. It depends, in this case, upon the soil productivity in
what quantities of product the value shall be manifested. But this
value is given, independent of this distribution. Value is repre¬
sented in use-value; and use-value is a prerequisite for the creation
of value; but it is folly to create an antithesis by placing a use-
value, like iand, on one side and on the other side value, and
a particular portion of value at that. 2) ... [here the manuscript
breaks off 1.

Vulgar economy actually does no more than interpret, system¬
atise and defend in doctrinaire fashion the conceptions of the
agents of bourgeois production who are entrapped in bourgeois
production relations. It should not astonish us, then, that vul¬
gar economy feels particularly at home in the estranged outward
appearances of economic relations in which these prima facie
absurd and perfect contradictions appear and that these relations
seem the more self-evident the more their internal relationships
are concealed from it, although they are understandable to the
popular mind. But all science would be superfluous if the outward
appearance and the essence of things directly coincided. Thus,
vulgar economy has not the slightest suspicion that the trinity
which it takes as its point of departure, namely, land — rent,
capital — interest, labour — wages or the price of labour, are
prima facie three impossible combinations. First we have the
use-value land, which has no value, and the exchange-value
rent: so that a social relation conceived as a thing is made pro¬
portional to Nature, i.e., two incommensurable magnitudes are
supposed to stand in a given ratio to one another. Then capital —
interest. If capital is conceived as a certain sum of values repre¬
sented independently by money, then it is prima facie nonsense
to say that a certain value should be worth more than it is worth.
It is precisely in the form: capital — interest that all intermediate
links are eliminated, and capital is reduced to its most general
formula, which therefore in itself is also inexplicable and absurd.
The vulgar economist prefers the formula capital — interest.

818

revenues and their sources

with its occult quality of making a value unequal to itself, to
the formula capital — profit, precisely for the reason that this
already more nearly approaches actual capitalist relations.
Then again, driven by the disturbing thought that 4 is not 5 and
that 100 taler cannot possibly be 110 taler, he flees from capital
as value to the material substance of capital; to its use-value as
a condition of production of labour, to machinery, raw materials,
etc. Thus, he is able once more to substitute in place of the first
incomprehensible relation, whereby 4=5, a wholly incommen¬
surable one between a use-value, a thing on one side, and a defi¬
nite social production relation, surplus-value, on the other, as
in the case of landed property. As soon as the vulgar economist
arrives at this incommensurable relation, everything becomes
clear to him, and he no longer feels the need for further thought.
For he has arrived precisely at the “rational” in bourgeois con¬
ception. Finally, labour — wages, or price of labour, is an expres¬
sion, as shown in Book I,* which prima facie contradicts the
conception of value as well as of price — the latter generally being
but a definite expression of value. And “price of labour” is just
as irrational as a yellow logarithm. But here the vulgar economist
is all the more satisfied, because he has gained the profound
insight of the bourgeois, namely, that he pays money for labour,
and since precisely the contradiction between the formula and
the conception of value relieves him from all obligation to under¬
stand the latter.

We49 have seen that the capitalist process of. production is a
historically determined form of the social process of production
in general. The latter is as much a production process of material
conditions of human life as a process taking place under specific
historical and economic production relations, producing and
reproducing these production relations themselves, and thereby
also the bearers of this process, their material conditions of
existence and their mutual relations, i.e., their particular socio¬
economic form. For the aggregate of these relations, in which
the agents of this production stand with respect to Nature and
to one another, and in which they produce, is precisely society,
considered from the standpoint of its economic structure. Like
all its predecessors, the capitalist process of production proceeds

* English edition: Vol. I, pp. 535-42. — Ed.

4* Beginning of Chapter XLVIII according to the manuscript. — F. E.

TRINITY FORMULA

819

under definite material conditions, which are, however, simulta¬
neously the hearers of definite social relations entered into by
individuals in the process of reproducing their life. Those con¬
ditions, like these relations, are on the one hand prerequisites,
on the other hand results and creations of the capitalist process
of production; they are produced and reproduced by it. We saw
also that capital — and the capitalist is merely capital personi¬
fied and functions in the process of production solely as the agent
of capital— in its corresponding social process of production,
pumps a definite quantity of surplus-labour out of the direct
producers, or labourers; capital obtains this surplus-labour
without an equivalent, and in essence it always remains forced
labour — no matter how much it may seem to result from free
contractual agreement. This surplus-labour appears as surplus-
value, and this surplus-value exists as a surplus-product. Sur¬
plus-labour in general, as labour performed over and above
the given requirements, must always remain. In the capitalist
as well as in the slave system, etc., it merely assumes an antag¬
onistic form and is supplemented by complete idleness of a stra¬
tum of society. A definite quantity of surplus-labour is required
as insurance against accidents, and by the necessary and progres¬
sive expansion of the process of reproduction in keeping with the
development of the needs and the growth of population, which is
called accumulation from the viewpoint of the capitalist. It is
one of the civilising aspects of capital that it enforces this surplus-
labour in a manner and under conditions which are more advan¬
tageous to the development of the productive forces, social rela¬
tions, and the creation of the elements for a new and higher
form than under the preceding forms of slavery, serfdom, etc.
Thus it gives rise to a stage, on the one hand, in which coercion
and monopolisation of social development (including its material
and intellectual advantages) by one portion of society at the
expense of the other are eliminated; on the other hand, it creates
the material means and embryonic conditions, making it possible
in a higher form of society to combine this surplus-labour with a
greater reduction of time devoted to material labour in general.
For, depending on the development of labour productivity,
surplus-labour may be large in a small total working-day, and
relatively small in a large total working-day. If the necessary
labour-time=3 and the surplus-labour=3, then the total working-
day=6 and the rate of surplus-labour=100%. If the necessary
labour=9 and the surplus-labour=3, then the total working-
day =12 and the rate of surplus-labour only =33 1/8%. In that

820

REVENUES AND THEIR SOURCES

case, it depends upon the labour productivity how much use-
value shall be produced in a definite time, hence also in a definite
surplus labour-time. The actual wealth of society, and the possi¬
bility of constantly expanding its reproduction process, therefore,
do not depend upon the duration of surplus-labour, but upon its
productivity and the more or less copious conditions of production
under which it is performed. In fact, the realm of freedom actually
begins only where labour which is determined by necessity and
mundane considerations ceases; thus in the very nature of things
it lies beyond the sphere of actual material production. Just as
the savage must wrestle with Nature to satisfy his wants, to
maintain and reproduce life, so must civilised man, and he must
do so in all social formations and under all possible modes of
production. With his development this realm of physical necessity
expands as a result of his wants; but, at the same time, the forces
of production which satisfy these wants also increase. Freedom
in this field can only consist in socialised man, the associated
producers, rationally regulating their interchange with Nature,
bringing it under their common control, instead of being ruled
by it as by the blind forces of Nature; and achieving this with the
least expenditure of energy and under conditions most favourable
to, and worthy of, their human nature. But it nonetheless still
remains a realm of necessity. Beyond it begins that development
of human energy which is an end in itself, the true realm of free¬
dom, which, however, can blossom forth only with this realm
of necessity as its basis. The shortening of the working-day is
its basic prerequisite.

In a capitalist society, this surplus-value, or this surplus-
product (leaving aside chance fluctuations in its distribution and
considering only its regulating law, its standardising limits),
is divided among capitalists as dividends proportionate to the
share of the social capital each holds. In this form surplus-value
appears as average profit which falls to the share of capital, an
average profit which in turn divides into profit of enterprise and
interest, and which under these two categories may fall into
the laps of different kinds of capitalists. This appropriation and
distribution of surplus-value, or surplus-product, on the part of
capital, however, has its barrier in landed property. Just as the
operating capitalist pumps surplus-labour, and thereby surplus-
value and surplus-product in the form of profit, out of the la
bourer, so the landlord in turn pumps a portion of this surplus-
value, or surplus-product, out of the capitalist in the form of
rent in accordance with the laws already elaborated.

TRINITY FORMULA

821

Hence, when speaking here of profit as that portion of surplus-
value falling to the share of capital, we mean average profit
(equal to profit of enterprise plus interest) which is already
limited by the deduction of rent from the aggregate profit (iden¬
tical in mass with aggregate surplus-value); the deduction of
rent is assumed. Profit of capital (profit of enterprise plus in¬
terest) and ground-rent are thus no more than particular compo¬
nents of surplus-value, categories by which surplus-value is
differentiated depending on whether it falls to the share of capital
or landed property, headings which in no whit however alter its
nature. Added together, these form the sum of social surplus-
value. Capital pumps the surplus-labour, which is represented
by surplus-value and surplus-product, directly out of the labour¬
ers. Thus, in this sense, it may be regarded as the producer of
surplus-value. Landed property has nothing to do with the actual
process of production. Its role is confined to transferring a portion
of the produced surplus-value from the pockets of capital to its
own. However, the landlord plays a role in the capitalist process
of production not merely through the pressure he exerts upon
capital, nor merely because large landed property is a prerequi¬
site and condition of capitalist production since it is a prerequi¬
site and condition of the expropriation of the labourer from the
means of production, but particularly because he appears as the
personification of one of the most essential conditions of pro¬
duction.

Finally, the labourer in the capacity of owner and seller of
his individual labour-power receives a portion of the product
under the label of wages, in which that portion of his labour
appears which we call necessary labour, i.e., that required for
the maintenance and reproduction of this labour-power, be the
con itions of this maintenance and reproduction scanty or boun¬
tiful, favourable or unfavourable.

Whatever may be the disparity of these relations in other
respects, they all have this in common: Capital yields a profit
year after year to the capitalist, land a ground-rent to the land¬
lord, and labour-power, under normal conditions and so long
as it remains useful labour-power, a wage to the labourer. These
three portions of total value annually produced, and the cor¬
responding portions of the annually created total product (leav¬
ing aside for the present any consideration of accumulation),
may be annually consumed by their respective owners, without
exhausting the source of their reproduction. They are like the
annually consumable fruits of a perennial tree, or rather three

27—2494

822

REVENUES AND THEIR SOURCES

trees; they form the annual incomes of three classes, capitalist,
landowner and labourer, revenues distributed by the functioning
capitalist in his capacity as direct extorter of surplus-labour
and employer of labour in general. Thus, capital appears to the
capitalist, land to the landlord, and labour-power, or rather
labour itself, to the labourer (since he actually sells labour-
power only as it is manifested, and since the price of labour-
power, as previously shown, inevitably appears as the price of
labour under the capitalist mode of production), as three different
sources of their specific revenues, namely, profit, ground-rent
and wages. They are really so in the sense that capital is a peren¬
nial pumping-machine of surplus-labour for the capitalist, land
a perennial magnet for the landlord, attracting a portion of the
surplus-value pumped out by capital, and finally, labour the
constantly self-renewing condition and ever self-renewing means
of acquiring under the title of wages a portion of the value cre¬
ated by the labourer and thus a part of the social product meas¬
ured by this portion of value, i.e., the necessities of life. They are
so, furthermore, hi the sense that capital fixes a portion of the
value and thereby of the product of the annual labour in the
form of profit; landed property fixes another portion in the form
of rent; and wage-labour fixes a third portion in the form of wages,
and precisely by this transformation converts them into revenues
of the capitalist, landowner, and labourer, without, however,
creating the substance itself which is transformed into these
various categories. The distribution rather presupposes the exist¬
ence of this substance, namely, the total value of the annual
product, which is nothing hut materialised social labour. Neverthe¬
less, it is not in this form that the matter appears to the agents
of production, the bearers of the various functions in the produc¬
tion process, but rather in a distorted form. Why this takes place
will be developed in the further course of our analysis. Capital
landed property and labour appear to those agents of production
as three different, independent sources, from which as such
there arise three different components of the annually produced
value — and thereby the product in which it exists; thus, from
which there arise not merely the different forms of this value
as revenues falling to the share of particular factors in the social
process of production, but from which this value itself arises,
and thereby the substance of these forms of revenue.

[Here one folio sheet of the manuscript is missing. ]

... Differential rent is bonnd up with the relative soil fertility,
in other words, with properties arising from the soil as such.

TRINITY FORMULA

823

But, in the first place, in so far as it is based upon the different
individual values of the products of different soil types, it is
but the determination just mentioned; secondly, in so far as it
is based upon the regulating general market-value, which differs
from these individual values, it is a social law carried through
by means of competition, which has to do neither with the soil
nor the different degrees of its fertility.

It might seem as if a rational relation were expressed at least
in “labour— wages. ” But this is no more the case than with
“land— ground-rent.” In so far as labour is value-creating, and
is manifested in the value of commodities, it has nothing to do
with the distribution of this value among various categories. In
so far as it has the specifically social character of wage-labour,
it is not value-creating. It has already been shown in general
that wages of labour, or price of labour, is but an irrational
expression for the value, or price of labour-power; and the specific
social conditions, under which this" labour-power is sold, have
nothing to do with labour as a general agent in production.
Labour is also materialised in that value component of a commod¬
ity which as wages forms the price of labour-power; it creates
this portion just as much as the other portions of the product;
but it is materialised in this portion no more and no differently
than in the portions forming rent or profit. And, in general,
when we establish labour as value-creating, we do not consider it
in its concrete form as a condition of production, but in its social
delimitation which differs from that of wage-labour.

Even the expression “capital — profit” is incorrect here. If
capital is viewed in the only relation in which it produces sur¬
plus-value, namely, its relation to the labourer whereby it extorts
surplus-labour by compulsion exerted upon labour-power, i.e.,
the wage-labourer, then this surplus-value comprises, outside of
profit (profit of enterprise plus interest), also rent, in short, the
entire undivided surplus-value. Here, on the other hand, as a
source of revenue, it is placed only in relation to that portion
falling to the share of the capitalist. This is not the surplus-
value which it extracts generally but only that portion which it
extracts for the capitalist. Still more does all connection vanish
no sooner the formula is transformed into “capital— interest. ”

If we at first considered the disparity of the above three sources,
we now note that their products, their offshoots, or revenues, on
the other hand, all belong to the same sphere, that of value.
However, this is compensated for (this relation not only between
incommensurable magnitudes, but also between wholly unlike.

27'

824

REVENUES AND THEIR SOURCES

mutually unrelated, and non-comparable things) in that capital,
like land and labour, is simply considered as a material sub¬
stance, that is, simply as a produced means of production, and
thus is abstracted both as a relation to the labourer and as
value.

Thirdly, if understood in this way, the formula, capital — in¬
terest (profit), land — rent, labour — wages, presents a uniform
and symmetrical incongruity. In fact, since wage-labour does not
appear as a socially determined form of labour, but rather all
labour appears by its nature as wage-labour (thus appearing to
those in the grip of capitalist production relations), the definite
specific social forms assumed by the material conditions of
labour — the produced means of production and the land — with
respect to wage-labour (just as they, in turn, conversely presup¬
pose wage-labour), directly coincide with the material existence
of these conditions of labour or with the form possessed by them
generally in the actual labour-process, independent of its concrete
historically determined social form, or indeed independent of
any social form. The changed form of the conditions of labour,
i e., alienated from labour and confronting it independently,
whereby the produced means of production are thus 'transformed
into capital, and the land into monopolised land, or landed
property— this form belonging to a definite historical period
thereby coincides with the existence and function of the produced
means of production and of the land in the process of production
in general. These means of production are in themselves capital
by nature; capital is merely an “economic appellation” for these
means of production; and so, in itself land is by nature the earth
monopolised by a certain number of landowners. Just as products
confront the producer as an independent force in capital and
capitalists — who actually are but the personification of capital —
so land becomes personified in the landlord and likewise gets
on its hind legs to demand, as an independent force, its share
of the product created with its help. Thus, not the land receives
its due portion of the product for the restoration and improvement
of its productivity, but instead the landlord takes a share of
this product to chaffer away or squander. It is clear that capital
presupposes labour as wage-labour. But it -is just as clear that if
labour as wage-labour is taken as the point of departure, so that
the identity of labour in general with wage-labour appears to
be self-evident, then capital and monopolised land must also
appear as the natural form of the conditions of labour in relation
to labour in general. To be capital, then, appears as the natural

TRINITY FORMULA

825

form of the means of labour and thereby as the purely real char¬
acter arising from their function in the labour-process in general.
Capital and produced means of production thus become identical
terms. Similarly, land and land monopolised through private
ownership become identical. The means of labour as such, which
are by nature capital, thus become the source of profit, much
as the land as such becomes the source of rent.

Labour as such, in its simple capacity as purposive productive
activity, relates to the means of production, not in their social
determinate form, but rather in their concrete substance, as
material and means of labour; the latter likewise are distin¬
guished from one another merely materially, as use-values, i.e., the
land as unproduced, the others as produced, means of labour.
If, then, labour coincides with wage-labour, so does the partic¬
ular social form in which the conditions of labour confront
labour coincide with their material existence. The means of
labour as such are then capital, and the land as such is landed
property. The formal independence of these conditions of labour
in relation to labour, the unique form of this independence with
respect to wage-labour, is then a property inseparable from them
as things, as material conditions of production, an inherent,
immanent, intrinsic character of them as elements of production.
Their definite social character in the process of capitalist produc¬
tion bearing the stamp of a definite historical epoch is a natural,
and intrinsic substantive character belonging to them, as it were,
from time immemorial, as elements of the production process.
Therefore, the respective part played by the earth as the original
field of activity of labour, as the realm of forces of Nature, as
the pre-existing arsenal of all objects of labour, and the other
respective part played by the produced means of production (in¬
struments, raw materials, etc.) in the general process of produc¬
tion, must seem to be expressed in the respective shares claimed
by them as capital and landed property, i.e., which fall to the
share of their social representatives in the form of profit (interest)
and rent, like to the labourer — the part his labour plays in the
process of production is expressed in wages. Rent, profit and
wages thus seem to grow out of the role played by the land,
produced means of production, and labour in the simple labour-
process, even when we consider this labour-process as one carried
on merely between man and Nature, leaving aside any historical
determination. It is merely the same thing again, in another
form, when it is argued: the product in which a wage-labourer’s
labour for himself is manifested, his proceeds or revenue, is

826

REVENUES AND THEIR SOURCES

simply wages, the portion of value (and thereby the social product
measured by this value) which his wages represent. Thus, if
wage-labour coincides with labour generally, then so do wages
with the produce of labour, and the value portion representing
wages with the value created by labour generally. But in this
way the other portions of value, profit and rent also appear
independent with respect to wages, and must arise from sources
of their own, which are specifically different and independent
of labour; they must arise from the participating elements of
production, to the share of whose owners they fall; i.e., profit
arises from the means of production, the material elements of
capita], and rent arises from the land, or Nature, as represented
by the landlord (Roscher).*

Landed property, capital and wage-labour are thus transformed
from sources of revenue — in the sense that capital attracts to
the capitalist, in the form of profit, a portion of the surplus-
value extracted by him from labour, that monopoly in land
attracts for the landlord another portion in the form of rent;
and that labour grants the labourer the remaining portion of
value in the form of wages— from sources by means of which one
portion of value is transformed into the form of profit, another
into the form of rent, and a third into the form of wages — into
actual sources from which these value portions and respective
portions of the product in which they exist, or for which they are
exchangeable, arise themselves, and from which, therefore, in
the final analysis, the value of the product itself arises.60

In the case of the simplest categories of the capitalist mode of
production, and even of commodity-production, in the case of
commodities and money, we have already pointed out the mystify¬
ing character that transforms the social relations, for which
the material elements of wealth serve as bearers in production,
into properties of these things themselves (commodities) and
still more pronouncedly transforms the production relation itself
into a thing (money). All forms of society, in so far as they reach

• Roscher, System der Volkswirtschaft, Band I, Die Grundlagen der
Nationalokonomie, Stuttgart und Augsburg, 1858.— Ed.

60 Wages, profit, and rent are the three original sources of all revenue,
as well as of all exchangeable value (A. Smith) [ An Inquiry into the Nature
and Causes of the Wealth of Nations, Aberdeen, London, 1848, S. 43. — Ed. J
— It is thus that the oauses of material production are at the same time the
sources of the original revenues which exist. (Storch [ Cours d’economie
politique, St.-Petersbourg, 1815.— Ed.], I, p. 259.— Ed.)

TRINITY FORMULA

827

the stage of commodity-production and money circulation, take
part in this perversion. But under the capitalist mode of produc¬
tion and in the case of capital, which forms its dominant category,
its determining production relation, this enchanted and per¬
verted world develops still more. If one considers capital, to begin
with, in the actual process of production as a means of extracting
surplus-labour, then this relationship is still very simple, and
the actual connection impresses itself upon the bearers of this
process, the capitalists themselves, and remains in their conscious¬
ness. The violent struggle over the limits of the working-day
demonstrates this strikingly. But even within this non-mediated
sphere, the sphere of direct action between labour and capital,
matters do not rest in this simplicity. With the development
of relative surplus-value in the actual specifically capitalist
mode of production, whereby the productive powers of social
labour are developed, these productive powers and the social
interrelations of labour in the direct labour-process seem trans¬
ferred from labour to capital. Capital thus becomes a very mystic
being since all of labour's social productive forces appear to be
due to capital, rather than labour as such, and seem to issue
from the womb of capital itself. Then the process of circulation
intervenes, with its changes of substance and form, on which
all parts of capital, even agricultural capital, devolve to the
same degree that the specifically capitalist mode of production
develops. This is a sphere where the relations under which value
is originally produced are pushed completely into the back¬
ground. In the direct process of production the capitalist already
acts simultaneously as producer of commodities and manager of
commodity-production. Hence this process of production appears
to him by no means simply as a process of producing surplus-
value. But whatever may be the surplus-value extorted by cap¬
ital in the actual production process and appearing in commodi¬
ties, the value and surplus-value contained in the commodities
must first be realised in the circulation process. And both the
restitution of the values advanced in production and, particularly,
the surplus-value contained in the commodities seem not merely
to be realised in the circulation, but actually to arise from it;
an appearance which is especially reinforced by two circum¬
stances: first, the profit made in selling depends on cheating,
deceit, inside knowledge, skill and a thousand favourable market
opportunities; and then by the circumstance that added here
to labour-time is a second determining element — time of circu¬
lation. This acts, in fact, only as a negative barrier against the

82S

REVENUES AND THEIR SOURCES

formation of value and surplus-value, but it has the appearance
of being as definite a basis as labour itself and of introducing
a determining element that is independent of labour and result¬
ing from the nature of capital. In Book II we naturally had to
present this sphere of circulation merely with reference to the
form determinations which it created and to demonstrate the
further development of the structure of capital taking place in
this sphere. But in reality this sphere is the sphere of compe¬
tition, which, considered in each individual case, is dominated
by chance; where, then, the inner law, which prevails in these
accidents and regulates them, is only visible when these accidents
are grouped together in large numbers, where it remains, there¬
fore, invisible and unintelligible to the individual agents in
production. But furthermore: the actual process of production,
as a unity of the direct production process and the circulation
process, gives rise to new formations, in which the vein of internal
connections is increasingly lost, the production relations are
rendered independent of one another, and the component values
become ossified into forms independent of one another.

The conversion of surplus-value into profit, as we have seen,
is determined as much by the process of circulation as by the
process of production. Surplus-value, in the form of profit, is no
longer related back to that portion of capital invested in labour
from which it arises, but to the total capital. The rate of profit
is regulated by laws of its own, which permit, or even require,
it to change while the rate of surplus-value remains unaltered.
All this obscures more and more the true nature of surplus-value
and thus the actual mechanism of capital. Still more is this
achieved through the transformation of profit into average profit
and of values into prices of production, into the regulating aver¬
ages of market-prices. A complicated social process intervenes
here, the equalisation process of capitals, which divorces the
relative average prices of the commodities from their values,
as well as the average profits in the various spheres of produc¬
tion (quite aside from the individual investments of capital in
each particular sphere of production) from the actual exploita¬
tion of labour by the particular capitals. Not only does it appear
so, but it is true in fact that the average price of commodities
differs from their value, thus from the labour realised in them,
and the average profit of a particular capital differs from the
surplus-value which this capital has extracted from the labourers
employed by it. The value of commodities appears, directly,
solely in the influence of fluctuating productivity of labour

TRINITY FORMULA

829

upon the rise and fall of the prices of production, upon their
movement and not upon their ultimate limits. Profit seems to
be determined only secondarily by direct exploitation of labour,
in so far as the latter permits the capitalist to realise a profit
deviating from the average profit at the regulating market-
prices, which apparently prevail independent of such exploi¬
tation. Normal average profits themselves seem immanent in
capital and independent of exploitation; abnormal exploitation,
or even average exploitation under favourable, exceptional
conditions, seems to determine only the deviations from average
profit, not this profit itself. The division of profit into profit
of enterprise and interest (not to mention the intervention of
commercial profit and profit from money-dealing, which are
founded upon circulation and appear to arise completely from it,
and not from the process of production itself) consummates the
individualisation of the form of surplus-value, the ossification of
its form as opposed to its substance, its essence. One portion of
profit, as opposed to the other, separates itself entirely from the
relationship of capital as such and appears as arising not out of
the function of exploiting wage-labour, but out of the wage-
labour of the capitalist himself. In contrast thereto, interest
then seems to be independent both of the labourer’s wage-labour
and the capitalist’s own labour, and to arise from capital as its
own independent source. If capital originally appeared on the
surface of circulation as a fetishism of capital, as a value-creat¬
ing value, so it now appears again in the form of interest-
bearing capital, as in its most estranged and characteristic
form. Wherefore also the formula capital — interest, as the third
to land — rent and labour — wages, is much more consistent
than capital — profit, since in profit there still remains a recollec¬
tion of its origin, which is not only extinguished in interest,
but is also placed in a form thoroughly antithetical to this
origin.

Finally, capital as an independent source of surplus-value is
joined by landed property, which acts as a barrier to average
profit and transfers a portion of surplus-value to a class that
neither works itself, nor directly exploits labour, nor can find
morally edifying rationalisations, as in the case of interest-
bearing capital, e.g., risk and sacrifice of lending capital to
others. Since here a part of the surplus-value seems to be bound
up directly with a natural element, the land, rather than with
social relations, the form of mutual estrangement and ossification
of the various parts of surplus-value is completed, the inner

830

REVENUES AND THEIR SOURCES

connection completely disrupted, and its source entirely buried,
precisely because the relations of production, which are bound
to the various material elements of the production process, have
been rendered mutually independent.

In capital — profit, or still better capital — interest, land —
rent, labour — wages, in this economic trinity represented as the
connection between the component parts of value and wealth
in general and its sources, we have the complete mystification of
the capitalist mode of production, the conversion of social rela¬
tions into things, the direct coalescence of the material produc¬
tion relations with their historical and social determination. It
is an enchanted, perverted, topsy-turvy world, in which Monsieur
le Capital and Madame la Terre do their ghost-walking as social
characters and at the same time directly as mere things. It is
the great merit of classical economy to have destroyed this false
appearance and illusion, this mutual independence and ossifi¬
cation of the various social elements of wealth, this personifica¬
tion of things and conversion of production relations into entities,
this religion of everyday life. It did so by reducing interest to
a portion of profit, and rent to the surplus above average profit,
so that both of them converge in surplus-value; and by represent¬
ing the process of circulation as a mere metamorphosis of forms,
and finally reducing value and surplus-value of commodities to
labour in the direct production process. Nevertheless even the
best spokesmen of classical economy remain more or less in the
grip of the world of illusion which their criticism had dissolved,
as cannot be otherwise from a bourgeois standpoint, and thus
they all fall more or less into inconsistencies, half-truths and
unsolved contradictions. On the other hand, it is just as natural
for the actual agents of production to feel completely at home
in these estranged and irrational forms of capital — interest,
land — rent, labour — wages, since these are precisely the forms
of illusion in which they move about and find their daily occu¬
pation. It is therefore just as natural that vulgar economy,
which is no more than a didactic, more or less dogmatic, trans¬
lation of everyday conceptions of the actual agents of production,
and which arranges them in a certain rational order, should see
precisely in this trinity, which is devoid of all inner connection,
the natural and indubitable lofty basis for its shallow pompous¬
ness. This formula simultaneously corresponds to the interests
of the ruling classes by proclaiming the physical necessity
and eternal justification of their sources of revenue and elevating
them to a dogma.

TRINITY FORMULA

831

In our description of how production relations are converted
into entities and rendered independent in relation to the agents
of production, we leave aside the manner in which the interre¬
lations, due to the world-market, its conjunctures, movements
of market-prices, periods of credit, industrial and commercial
cycles, alternations of prosperity and crisis, appear to them as
overwhelming natural laws that irresistibly enforce their will over
them, and confront them as blind necessity. We leave this aside
because the actual movement of competition belongs beyond
our scope, and we need present only the inner organisation of
the capitalist mode of production, in its ideal average, as it
were.

In preceding forms of society this economic mystification
arose principally with respect to money and interest-bearing
capital. In the nature of things it is excluded, in the first place,
where production for the use-value, for immediate personal
requirements, predominates; and, secondly, where slavery or
serfdom form the broad foundation of social production, as in
antiquity and during the Middle Ages. Here, the domination of
the producers by the conditions of production is concealed by
the relations of dominion and servitude, which appear and are
evident as the direct motive power of the process of production.
In early communal societies in which primitive communism
prevailed, and even in the ancient communal towns, it was this
communal society itself with its conditions which appeared as
the basis of production, and its reproduction appeared as its
ultimate purpose. Even in the medieval guild system neither
capital nor labour appear untrammelled, but their relations are
rather defined by the corporate rules, and by the same associ¬
ated relations, and corresponding conceptions of professional
duty, craftsmanship, etc. Only when the capitalist mode of
production* —

• The manuscript breaks off here.— Ed.

CHAPTER XLIX

CONCERNING THE ANALYSIS
OF THE PROCESS OF PRODUCTION

For the purposes of the following analysis we may leave out
of consideration the distinction between price of production and
value, since this distinction disappears altogether when, as here,
the value of the total annual product of labour is considered,
i.e., the product of the total social capital.

Profit (profit of enterprise plus interest) and rent are nothing
but peculiar forms assumed by particular parts of the surplus-
value of commodities. The magnitude of surplus-value is the
limit of the total size of the parts into which it may be divided.
Average profit plus rent are, therefore, equal to the surplus-value.
It is possible for part of the surplus-labour, and thus surplus-
value, contained in the commodities, not to take part directly
in the equalisation of an average profit, so that part of the com¬
modity-value is not expressed at all in its price. But first, this is
balanced either by the fact that the rate of profit increases,
when the commodities sold below their value form an element of
the constant capital, or by profit and rent being represented by
a larger product, when commodities sold below their value enter
into the portion of value consumed as revenue in the form of
articles for individual consumption. Secondly, this is eliminated
in the average movement. At any rate, even if a portion of sur¬
plus-value not expressed in the price of the commodity is lost
for the price formation, the sum of average profit plus rent in
its normal form can never be larger than the total surplus-value,
although it may be smaller. Its normal form presupposes wages
corresponding to the value of labour-power. Even monopoly
rent, in so far as it is not a deduction from wages, i.e., does not
constitute a special category, must always indirectly be a part

ANALYSIS OF PRODUCTION

833

of the surplus-value. It it is not part of the price excess above
the price of production of the commodity itself, of which it is
a constituent part (as in differential rent), or an excess portion
of the surplus-value of the commodity itself, of which it is a
constituent part, above that portion of its own surplus-value
measured by the average profit (as in absolute rent), it is at least
part of the surplus-value of other commodities, i.e., of commod¬
ities which are exchanged for this commodity having a monopoly
price. The sum of average profit plus ground -rent can never be
greater than the magnitude of which they are components and
which exists before this division. It is therefore immaterial for
our discussion whether the entire surplus-value of the commod¬
ities, i.e., all the surplus-labour contained in the commodities,
is realised in their price or not. The surplus-labour is not entirely
realised if only for the reason that due to a continual change in
the amount of labour socially necessary to produce a certain
commodity, resulting from the constant change in the produc¬
tiveness of labour, some commodities are always produced under
abnormal conditions and must, therefore, be sold below their
individual value. At any rate, profit plus rent equal the total
realised surplus-value (surplus-labour),, and for purposes of this
discussion the realised surplus-value may be equated to all
surplus-value; for profit and rent are realised surplus-value, or,
generally speaking, the surplus-value which passes into the
prices of commodities, thus in practice all the surplus-value
forming a constituent part of this price.

On the other hand, wages, which form the third specific form
of revenue, are always equal to the variable component part of
capital, i.e., the component part which is laid out in purchasing
living labour-power, paying labourers rather than in means of
labour. (The labour which is paid in the expenditure of revenue
is itself paid in wages, profit, or rent, and therefore does not
form any value portion of commodities by which it is paid.
Hence it is not considered in the analysis of commodity-value
and of the component parts into which it is divided.) It is the
materialisation of that portion of the total working-day of the
labourer in which the value of variable capital and thus the price
of labour is reproduced; that portion of commodity-value in
which the labourer reproduces the value of his own labour-power,
or the price of his labour. The total working-day of the labourer
is divided into two parts. One portion in which he performs the
amount of labour necessary to reproduce the value of his own
means of subsistence; the paid portion of his total labour, the

834

REVENUES AND THEIR SOURCES

portion necessary for his own maintenance and reproduction.
The entire remaining portion of the working-day, the entire excess
quantity of labour performed above the value of the labour re¬
alised in his wages, is surplus-labour, unpaid labour, represented
in the surplus-value of his total commodity-production (and
thus in an excess quantity of commodities), surplus-value which
in turn is divided into differently named parts, into profit (profit
of enterprise plus interest) and rent.

The entire value portion of commodities, then, in which the
total labour of the labourers added during one day, or one year,
is realised, the total value of the annual product, created by this
labour, is divided into the value of wages, into profit and into
rent. For this total labour is divided into necessary labour, by
which the labourer creates that value portion of the product
with which he is himself paid, that is, his wages, and into unpaid
surplus-labour, by which he creates that value portion of the
product which represents surplus-value and which is later divided
into profit and rent. Aside from this labour, the labourer performs
no labour, and aside from the total value of the product, which
assumes the forms of wages, profit and rent, he creates no value.
The value of the annual product, in which the new labour added
by the labourer during the year is incorporated, is equal to the
wage, or the value of the variable capital plus the surplus-value,
which in turn is divided into profit and rent.

The entire value portion of the annual product, then, which
the labourer creates in the course of the year, is expressed in the
annual value sum of the three revenues, the value of wages,
profit, and rent. Evidently, therefore, the value of the constant
portion of capital is not reproduced in the annually created value
of product, for the wages are only equal to the value of the varia¬
ble portion of capital advanced in production, and rent and profit
are only equal to the surplus-value, the excess of value produced
above the total value of advanced capital, which equals the value
of the constant capital plus the value of the variable capital.

It is completely irrelevant to the problem to be solved here
that a portion of the surplus-value converted into the form of
profit and rent is not consumed as revenue, but is accumulated.
That portion which is saved up as an accumulation fund serves
to create new, additional capital, but not to replace the old capi¬
tal, be it the component part of old capital laid out for labour-
power or for means of labour. We may therefore assume here,
for the sake of simplicity, that the revenue passes wholly into
individual consumption. The difficulty is two-fold. On the one

ANALYSIS OF PRODUCTION

835

hand the value of the annual product, in which the revenues,
wages, profit and rent, are consumed, contains a portion of value
equal to the portion of value of constant capital used up in it.
It contains this portion of value in addition to that portion which
resolves itself into wages and that which resolves itself into
profit and rent. Its value is t,herefore=wages+profit+rent+C
(its constant portion of value). How can an annually produced
value, which onl y =wages+ pro fit + rent, buy a product the value
of which =(wages+profit+rent)+C? How can the annually
produced value buy a product which has a higher value than its
own?

On the other hand, if we leave aside that portion of constant
capital which did not pass over into the product, and which
therefore continues to exist, although with reduced value, as
before the annual production of commodities; in other words,
temporarily leaving out of consideration the employed, but not
consumed, fixed capital, then the constant portion of advanced
capital is seen to have been wholly transferred to the new product
in the form of raw and auxiliary materials, whereas a part of the
means of labour has been wholly consumed and another part only
partially, and thus only a part of its value has been consumed
in production. This entire portion of constant capital consumed
in production must be replaced in kind. Assuming all other
circumstances, particularly the productive power of labour, to
remain unchanged, this portion requires the same amount of
labour for its replacement as before, i.e., it must be replaced by
an equivalent value. If not, then reproduction itself cannot
take place on the former scale. But who is obliged to perform
this labour, and who does perform it?

As to the first difficulty: Who is obliged to pay for the constant
portion of value contained in the product, and with what? — It
is assumed that the value of constant capital consumed in pro¬
duction reappears as a part of the value of the product. This does
not contradict the assumptions of the second difficulty. For it
has already been demonstrated in Book I (Kap. V)* (“The Labour-
Process and the Process of Producing Surplus-Value”) how the
old value remains simultaneously preserved in the product
through the mere addition of new labour, although this does not
reproduce the old value and does no more than add to it, creates
merely additional value; but that this results from labour, not
in so far as it is value-creating, i.e.; labour in general, but in

English edition: Ch. VII. — Ed.

836

REVENUES AND THEIR SOURCES

its function as definite productive labour. Therefore, no addi¬
tional labour was necessary to preserve the value of the constant
portion in the product in which the revenue, i.e., the entire
value created during the year, is expended. But to be sure, new
additional labour is required to replace the value and use-value
of constant capital consumed during the preceding year, without
the replacement of which no reproduction at all is possible.

All newly added labour is represented in the value newly creat¬
ed during the year, and this in turn is divided into the three
revenues: wages, profit and rent.— Thus, on the one hand, no
excess social labour remains for the replacement of the consumed
constant capital, which must be replaced partially in kind and
according to its value, and partially merely according to its value
(for pure wear and tear on fixed capital). On the other hand,
the value annually created by labour, divided into wages, profit
and rent, and to be expended in this form, appears not to suffice
to pay for, or buy, the constant portion of capital, which must be
contained, outside their own value, in the annual product.

It is seen that the problem presented here has already been
solved in the consideration of reproduction of the total social
capital— Book II, Part III. We return to it here, in the first
place, because surplus-value had not been developed there in
its revenue forms: profit (profit of enterprise plus interest) and
rent, and could not, therefore, be treated in these forms; and
then, also because precisely in the form of wages, profit and
rent there is contained an incredible blunder in analysis, which
pervades all political economy since Adam Smith.

We divided all capital there into two big classes: Class I,
producing means of production, and Class II, producing articles
of individual consumption. The fact that certain products may
serve equally well both for personal consumption and as means
of production (a horse, grain, etc.) does not invalidate the abso¬
lute correctness of this division in any way. It is actually no
hypothesis, but merely an expression of fact. Take the annual
product of a country. One portion of the product, whatever its
ability to serve as means of production, passes over into individual
consumption. It is the product for which wages, profit and rent
are expended. This product is the product of a definite depart¬
ment of the social capital. It is possible that this same capital
may also produce products belonging to Class I. In so far as it
does so, it is not the portion of this capital consumed in the
products of Class II, products belonging actually to individual
consumption, which supplies the productively consumed products

ANALYSIS OF PRODUCTION

837

belonging to Class I. This entire product II, which passes into
individual consumption, and for which therefore the revenue is
spent, is the existent form of the capital consumed in it plus
the produced surplus. It is thus the product of a capital invested
solely in the production of articles of consumption. And in the
same way Department I of the annual product, which serves as
means of reproduction — raw materials and instruments of labour —
whatever capacity this product may otherwise possess natura-
liter to serve as means of consumption, is the product of a capital
invested solely in the production of means of production. By far
the greater part of products forming constant capital exists also
materially in a form in which it cannot pass into individual
consumption. In so far as this could be done, e.g., in so far as
a farmer could eat his seed-corn, butcher his draught animals,
etc., the economic barrier works the same for him as if this portion
did not exist in consumable form.

As already indicated, we leave out of consideration in both
classes the fixed portion of constant capital, which continues
to exist in kind and, so far as its value is concerned, independ¬
ently of the annual product of both classes.

In Class II, for the products of which wages, profit and rent
are expended, in short, the revenues consumed, the product
itself consists of three components so far as its value is concerned.
One component is equal to the value of the constant portion of
capital consumed in production; a second component is equal to
the value of the variable advanced capital laid out in wages;
finally, a third component is equal to the produced surplus-value,
thus=profit+rent. The first component of the product of Class II,
the value of the constant portion of capital, can be consumed
neither by the capitalists of Class II, nor by the labourers of
this class, nor by the landowners. It forms no part of their revenues,
but must be replaced in kind and must be sold for this to occur.
On the other hand, the other two components of this product are
equal to the value of the revenues created in this class, =wages+
+ profit -f rent.

In Class I the product consists of the same constituents, as
regards form. But that part which here forms revenue, wages +
+ pro fit-f- rent, in short, the variable portion of capital+surplus-
value, is not consumed here in the natural form of products
of this Class I, but in products of Class II. The value of the reve¬
nues of Class I must, therefore, be consumed in that portion of
products of Class II which forms the constant capital of II to be
replaced. The portion of the product of Class II which must

838

REVENUES AND THEIR SOURCES

replace its constant capital is consumed in its natural form by
J.he labourers, capitalists and landlords of Class I. They spend
their revenue for this product of II. On the other hand, the prod¬
uct of I, to the extent that it represents a revenue of Class I,
is productively consumed in its natural form by Class II, whose
constant capital it replaces in kind. Finally, the used-up constant
portion of capital of Class I is replaced out of the very products
of this class, which consist precisely of means of labour, raw and
auxiliary materials, etc., partly through exchange by capital¬
ists of I among themselves, partly so that some of these capital¬
ists can directly use their own product once more as means of
production.

Let us take the previous scheme (Book II, Chapter XX, II) for
simple reproduction:

I. 4, 000e+l,000T+i, 0008=6,0001 n
II. 2,000c+ 500r+ 500a =3,000

According to this, the producers and landlords of II consume
500v+500,=l,000 as revenue; 2,000c remains to be replaced.
This is consumed by the labourers, capitalists and those who
draw rent from I, whose income = 1 ,000v + 1 ,000a = 2,000. The
consumed product of II is consumed as revenue by I, and the
portion of the revenue of I representing an unconsumable product
is consumed as constant capital by II. It remains then to account
for the 4,000c of I. This is replaced out of the product of I itself,
which=6,000, or rather=6, 000— 2,000; for these 2,000 have
already been converted into constant capital for II. It should be
noted, of course, that these numbers have been chosen arbitrar¬
ily, and so the relation between the value of the revenues of I and
the value of the constant capital of II appears arbitrary. It is
evident, however, that so far as the process of reproduction is
normal and takes place under otherwise equal circumstances,
i.e., leaving aside the accumulation, the sum of the values of
wages, profit and rent in Class I must equal the value of the con¬
stant portion of capital of Class II. Otherwise either Class II will
not be able to replace its constant capital, or Class I will not be
able to convert its revenue from unconsumable into consumable
form.

Thus, the value of the annual commodity-product, just like
the value of the commodity-product produced by some particu¬
lar investment of capital, and like the value of any individual
commodity, resolves itself into two component parts: A, which

ANALYSIS OF PRODUCTION

839

replaces the value of the advanced constant capital, and B,
which is represented in the form of revenue — wages, profit and
rent. The latter component part of value, B, is counterposed to
the former A, in so far as A, under otherwise equal circumstances:
1) never assumes the form of revenue and 2) always flows
back in the form of capital, and indeed constant capital. The
other component, B, however, carries within itself, in turn,
an antithesis. Profit and rent have this in common with wages:
all three are forms of revenue. Nevertheless they differ essentially
in that profit and rent represent surplus-value, i.e., unpaid
labour, whereas wages represent paid labour. The portion of
the value of the product which represents wages expended thus
replaces wages, and, under the conditions assumed by us, where
reproduction takes place on the same scale and under the same
conditions, is again reconverted into wages, flows hack first as
variable capital, as a component of the capital that must be
advanced anew for reproduction. This portion has a two-fold
function. It exists first in the form of capital and is exchanged
as such for labour-power. In the hands of the labourer, it is
transformed into revenue which he draws out of the sale of his
labour-power, is converted as revenue into means of subsistence
and consumed. This double process is revealed through the me¬
diation of money circulation. The variable capital is advanced
in money, paid out as wages. This is its first function as capital.
It is exchanged for labour-power and transformed into the mani¬
festation of this labour-power, into labour. This is the process
as regards the capitalist. Secondly, however: with this money
the labourers buy a part of the commodities produced by them,
which is measured by this money, and is consumed by them as
revenue. If we imagine the circulation of money to be eliminated,
then a part of the labourer’s product is in the hands of the capital¬
ist in the form of available capital. He advances this part as
capital, gives it to the labourer for new labour-power, while
the labourer consumes it as revenue directly or indirectly through
exchange for other commodities. That portion of the value of
the product, then, which is destined in the course of reproduction
to be converted into wages, into revenue for the labourers, first
flows back into the hands of the capitalist in the form of capital,
or more accurately variable capital. It is an essential require¬
ment that it should flow back in this form in order for labour
as wage-labour, the means of production as capital, and the
process of production itself as a capitalist process, to be contin¬
ually reproduced anew.

840

REVENUES AND THEIR SOURCES

In order to avoid unnecessary difficulty, one should distinguish
gross output and net output from gross income and net income.

The gross output, or gross product, is the total reproduced
product. With the exception of the employed but not consumed
portion of fixed capital, the value of the gross output, or gross
product, equals the value of capital advanced and consumed in
production, that is, constant and variable capital plus surplus-
value, which resolves itself into profit and rent. Or, if we consider
the product of the total social capital instead of that of an indi¬
vidual capital, the gross output equals the material elements
forming the constant and variable capital, plus the material
elements of the surplus-product in which profit and rent are
represented.

The gross income is that portion of value and that portion of
the gross product measured by it which remains after deducting
that portion of value and that portion of the product of total
production measured by it which replaces the constant capital
advanced and consumed in production. The gross income, then,
is equal to wages (or the portion of the product destined to again
become the income of the labourer)-fprofit-f-rent. The net in¬
come, on the other hand, is the surplus-value, and thus the sur¬
plus-product, which remains after deducting wages, and which, in
fact, thus represents the surplus-value realised by capital and to be
divided with the landlord, and the surplus-product measured by it.

Thus, we saw that the value of each individual commodity
and the value of the total commodity-product of each individual
capital is divided into two parts: one replaces only constant
capital, and the other, although a fraction of it flows back as
variable capital — thus also flows back in the form of capital —
nevertheless is destined to be wholly transformed into gross
income, and to assume the form of wages, profit and rent, the sum
of which makes up the gross income. Furthermore, we saw that
the same is true of the value of the annual total product of a
society. A difference between the product of the individual
capitalist and that of society exists only in so far as: from the
standpoint of the individual capitalist the net income differs
from the gross income, for the latter includes the wages, whereas
the former excludes them. Viewing the income of the whole
society, national income consists of wages plus profit plus rent,
thus, of the gross income. But even this is an abstraction to the
extent that the entire society, on the basis of capitalist produc¬
tion, bases itself on the capitalist standpoint and thereby consid¬
ers only the income resolved into profit and rent as net income.

ANALYSIS OF PRODUCTION

On the other hand, the fantasy of men like Say, to the effect
that the entire yield,- the entire gross output, resolves itself
into the net income of the nation or cannot be distinguished
from it, that this distinction therefore disappears from the na¬
tional viewpoint, is but the inevitable and ultimate expression of
the absurd dogma pervading political economy since Adam
Smith, that in the final analysis the value of commodities resolves
itself completely into income, into wages, profit and rent.®1
To comprehend, in the case of each individual capitalist, that
a portion of his product must be transformed again into capital
(even aside from the expansion of reproduction, or accumuiation),
indeed not only into variable capital, which is destined to again
become in its turn income for the labourers, thus a form of
revenue, but also into constant capital, which can never be
transformed into revenue— such discernment is naturally extraor¬
dinarily easy. The simplest observation of the process of production
shows this clearly. The difficulty first begins as soon as the process
of production is viewed as a whole. The value of the entire portion
of the product which is consumed as revenue in the form of wages,
profit and rent (it is entirely immaterial whether the consumption
is individual or productive), indeed, completely resolves itself
under analysis into the sum of values consisting of wages plus
profit plus rent, that is, into the total value of the three revenues,
although the value of this portion of the product, just like that
which does not enter into revenue, contains a value portion =C,
equal to the value of the constant capital contained in these por¬
tions, and thus prima facie cannot be limited by the value of the
revenue. This circumstance which, on the one hand, is a practically
irrefutable fact, on the other hand, an equally undeniable theoreti¬
cal contradiction presents a difficulty which is most easily circum-

*l Ricardo makes the following very apt comment on thoughtless Say:
“Of net produce and gross produce, M. Say speaks as follows: ‘The whole
value produced is the gross produce; this value, after deducting from it the
cost of production, is the net produce.’ (Vol. II, p. 491.) There can, then,
be no net produce, because the cost of production, according to M. Say, con¬
sists of rent, wages and profits. On page 508 he says: ‘The value of a product,
the value of a productive service, the value of the cost of production, are all,
then, similar values, whenever things are left to their natural course.’ Take
a whole from a whole, and nothing remains.” (Ricardo, Principles, Chapter
XXII, p. 512, Note. ) — By the way we shall see later that Ricardo nowhere
refuted Smith’s false analysis of commodity-price, its reduction to the sum
of the values of the revenues. He does not bother with it, and accepts its
correctness so far*in his analysis that he “abstracts” from the constant

fiortion of the value of commodities. He also falls back into the same way of
ooking at things from time to time.

842

REVENUES AND THEIR SOURCES

vented by the assertion that commodity-value contains another
portion of value, merely appearing to diSer, from the standpoint
of the individual capitalist, from the portion existing in the form
of revenue. The phrase: that which appears as revenue for one con¬
stitutes capital for another, relieves one of the necessity for any
further reflection. But how, then, the old capital can be replaced
when the value of the entire product is consumable in the form of
revenue; and how the value of the product of each individual capi¬
tal can be equal to the value sum of the three revenues plus C,
constant capital, whereas the sum of the values of the products
of all capitals is equal to the value sum of the three revenues plus
0 — this appears, of course, as an insoluble riddle and must be
solved by declaring that the analysis is completely incapable of
unravelling the simple elements of price, and must be content to go
around in a vicious circle making a spurious advance ad infinitum.
Thus, that which appears as constant capital may be resolved
into wages, profit and rent, but the commodity-values in which
wages, profit and rent appear, are determined in their turn by
wages, profit and rent, and so forth ad infinitum .62

The fundamentally erroneous dogma to the effect that the val¬
ue of commodities in the last analysis may be resolved into wages+
+ profit-frent also expresses itself in the proposition that the
consumer must ultimately pay for the total value of the total prod¬
uct; or also that the money circulation between producers and con¬
sumers must ultimately be equal to the money circulation between
the producers themselves (Tooke); all these propositions are as
false as the axiom upon which they are based.

** “In every society the price of every commodity finally resolves itself
into some one or other, or all of those three parts [vii., wages, profits, rent ]....
A fourth part, it may perhaps be thought, is necessary for replacing the stock
of the fanner or for compensating the wear and tear of his labouring cattle,
and other instruments of husbandry. But it must be considered that the
price of any instrument of husbandry, such as a labouring horse, is itself made
up of the same three parts: the rent of the land upon which he is reared, the
labour of tending and rearing him, and the profits of the farmer, who ad¬
vances both the rent of his land and the wages of his labour. Though the price
of the corn, therefore, may pay the price as well as the maintenance ol the
horse, the whole price still resolves itself either immediately or ultimately
into the same three parts of rent, labour [meaning wages ] and profit. ” (Adam
Smith.) — We shall show later on how Adam Smith himself feels the incon¬
sistency and insufficiency of this subterfuge, for it is nothing but a subter¬
fuge on his part to send us from Pontius to Pilate while nowhere does he
indicate the real investment of capital, in which case the price of the
product resolves itself ultimately into these three parts, without any further
progretsus.

ANALYSIS OF PRODUCTION

843

The difficulties, which lead to this erroneous and prima facie
absurd analysis, are briefly these:

1) The fundamental relationship of constant and variable capital,
hence also the nature of surplus-value, and thereby the entire ba¬
sis of the capitalist mode of production, are not understood. The
value of each partial product of capital, each individual commodity,
contains a portion of value = constant capital, a portion of
value=variable capital (transformed into wages for labourers),
and a portion of value=surplus-value (later split into profit and
rent). Thus, how is it possible for the labourer with his wages,
the capitalist with his profit, the landlord with his rent, to be
able to buy commodities, each of which contains not only one of
these constituent elements, but all three of them; and how is it
possible for the sum of the values of wages, profit and rent, that
is, the three sources of revenue together, to be able to buy the
commodities which go to make up the total consumption of the
recipients of these incomes — commodities containing an additional
component of value, namely constant capital, outside these
three components of value? How should they buy a value of four
with a value of three?63

43 Proudhon exposes his inability to grasp this in the ignorant formula¬
tion: Vouvrier ne pent pas racheter son propre produit (the labourer cannot
buy back his own product), because the interest which is added to the prix-
de-revient (cost-price) is contained in the product. But how does M. Eugene
Forcade teach him to know better? “If Proudhon’s objection were correct,
it would strike not only the profits of capital, but would eliminate the pos¬
sibility even of industry. If the labourer is compelled to pay 100 for each
article for which he has received only 80, if his wages can buy back only
the value which he has put into a product, it could be said that the labourer
cannot buy back anything, that wages cannot pay for anything. In fact,
there is always something more thaD the wages ol the labourer contained in
the cost-price, and always more than the profits of enterprise in the selling
price, for instance, the price of raw materials, often paid to foreign coun¬
tries. ... Proudhon has forgotten about the continual growth of national capi¬
tal; he has forgotten that this growth refers to all labourers, whether in an
enterprise or in handicrafts. ” ( Revue des deux Mondes, 1848, Tome 24, p. 998.)
Here we have the optimism of bourgeois thoughtlessness in the form of
sagacity that most corresponds to it. M. Forcade first believes that the la¬
bourer could not live did he not receive a higher value than that which he
produces, whereas conversely the capitalist mode of production could not
exist were he really to receive all the value which he produces. Secondly,
he correctly generalises the difficulty, which Proudhon expressed only from
a narrow viewpoint. The price of commodities contains not only an excess
over wages, but also over profit, namely, the constant portion of value. Ac¬
cording to Proudhon’s reasoning, then, the capitalist too could not buy back
the commodities with his profit. And how does Forcade solve this riddle?
By means of a meaningless phrase: the growth of capital. Thus the con-

844

REVENUES AND THEIR SOURCES

We presented our analysis in Book II, Part III.

2) The method is not grasped whereby labour, in adding a new
value, preserves the old value in a new form without producing
this old value anew.

3) The pattern of the process of reproduction is not understood
— how it appears not from the standpoint of individual capital,
but rather from that of the total capital; the difficulty is not un¬
derstood how it is that the product in which wages and surplus-
value, in short, the entire value produced by all the labour newly
added during the year, is realised, replaces the constant part of
its value and yet at the same time resolves itself into value limited
solely by the revenues; and furthermore how it is that the constant
capital consumed in production can be replaced in substance and
value by new capital, although the total sum of newly added
labour is realised only in wages and surplus-value, and is fully
represented in the sum of the values of both. It is precisely here
that the main difficulty lies, in the analysis of reproduction and the
relations of its various component parts, both as concerns their
material character and their value relationships.

4) To these difficulties is added still another, which increases
even more as soon as the various component parts of surplus-value
appear in the form of mutually independent revenues. This diffi¬
culty consists in the definite designations of revenue and capital
interchanging, and altering their position, so that they seem to be
merely relative determinations from the point of view of the individ¬
ual capitalist and to disappear when the total process of production
is viewed as a whole. For instance, the revenue of the labourers
and capitalists of Class I, which produces constant capital, replaces
in value and substance the constant capital of the capitalists
of Class II, which produces articles of consumption. One may,
therefore, squeeze out of the dilemma by remonstrating that what
is revenue for one is capital for another and that these designations
thus have nothing to do with the actual peculiarities of the value
components of commodities. Furthermore: commodities which are

tinual growth of capital is also supposed to be substantiated, among other
things, in that the analysis of commodity-prices, which is impossible for the
political economist as regards a capital of 100, becomes superfluous in the
case of a capital of 10,000. What would be said of a chemist, who, on being
asked How is it that the product of the soil contains more carbon than the
soil? would answer: It comes from the continual increase in agricultural pro¬
duction The well-meaning desire to discover in the bourgeois world the best
of all possible worlds replaces ih vulgar economy all need for love of truth
and inclination for scientific investigation.

ANALYSIS OF PRODUCTION

845

ultimately destined to form the substantive elements of revenue
expenditure, that is, articles of consumption, pass through various
stages during the year, e.g., woollen yarn, cloth. In one stage they
form a portion of constant capital, in the other they are consumed
individually, and thus pass wholly into the revenue. One may
therefore imagine along with Adam Smith that constant capital is
but an apparent element of commodity-value, which disappears
in the total pattern. Thus, a further exchange takes place of vari¬
able capital for revenue. The labourer buys with his wages that
portion of commodities which form his revenue. In this way he
simultaneously replaces for the capitalist the money-form of
variable capital. Finally: one portion of products which form
constant capital is replaced in kind or through exchange by the
producers of constant capital themselves; a process with which the
consumers have nothing to do. When this is overlooked the impres¬
sion is created that the revenue of consumers replaces the entire
product, i.e., including the constant portion of value.

5) Aside from the confusion which the transformation of values
into prices of production brings about, another arises due to the
transformation of surplus-value into different, special, mutually
independent forms of revenue applying to the various elements
of production, i.e., into profit and rent. It is forgotten that the
fact that the values of commodities are the basis, and that the divi¬
sion of these commodity-values into distinct constituent parts,
and the further development of these constituents of value into
forms of revenue, their transmutation into relations of various
owners of different factors of production to these individual com¬
ponents of value, their distribution among these owners according
to definite categories and titles, itself alters noth.ng in value deter¬
mination and its law. Just as little is the law of value changed by
the circumstance that the equalisation of profit, i.e., the distri¬
bution of the total surplus-value among the various capitals, and
the obstacles which landed property partially (in absolute rent)
puts in the way of this equalisation, bring about a divergence
between the regulating average prices and the individual values of
commodities. This again affects merely the addition of surplus-
value to the various commodity-prices, but docs not abolish sur¬
plus-value itself, nor the total value of commodities as the source
of these various component parts of price.

This is the quid, pro quo which we shall consider in the next chap¬
ter, and which is inevitably linked with the illusion that value
arises out of its own component parts. And namely, the various
component values of the commodity acquire independent forms

846

REVENUES AND THEIR SOURCES

as revenues, and as such revenues they are related back to the par¬
ticular material elements of production as their sources of origin
instead of to the value of the commodity as their source. They are
actually related back to those sources — however, not as components
of value, but rather as revenues, as components of value
falling to the share of these particular categories of agents in pro¬
duction: the labourer, the capitalist and the landlord. But then
one might fancy that these constituents of value, rather than
arising out of the division of commodity-value, conversely form it
instead only through their combination, which leads to the pretty
and vicious circle, whereby the value of commodities arises out of
the sum of the values of wages, profit and rent, and the value of
wages, profit and rent, in its turn, is determined by the value of
commodities, etc.54

51 “The circulating capital invested in materials, raw materials and
finished goods is itself composed of goods, the necessary price of which is
formed of the same elements; so that, viewing the total goods in one coun¬
try, it would mean duplication to count this portion of circulating capital
among the elements of the necessary price.” (Storch, Cours d' economic
politique, II, p. 140.)— By these elements of circulating capital Storch
means the value of constant capital (fixed capital is merely circulating in
a different form. “It is true that the wages of the labourer, like that portion
of profit of enterprise which consists of wages, if we consider them as a part
of the means of subsistence, also consist of goods bought at current prices
and which likewise comprise wages, interest on capital, ground-rent and
profit of enterprise.... This observation merely serves to prove that it is
impossible to resolve the necessary price into its simplest elements. ” (Ibid,
Note.) — In his Considerations sur la nature du revenu national (Paris, 1824),
Storch indeed realises in his controversy with. Say to what absurdity the
erroneous analysis of commodity-value leads — when it resolves value into
mere revenues. He correctly points out the folly of such results — not from
the viewpoint of the individual capitalist, but from that of a nation — but
himself goes no step further in his analysis of the prix necessaire from that
presented in his Cours, that it is impossible to resolve it into its actual ele¬
ments, without resolving it into a spurious advance ad infinitum. “It is
evident that the value of the annual product is divided partly into capitals
and partly into profits, and that each one of these portions of value of the
annual product regularly goes to buy the products needed by the nation, as
much to preserve its capital as to renew its consumption fund (pp. 134,
135).... Can it (a self-employed peasant family) live in its barns or stables,
eat its seed and forage, clothe itself with its draught cattle, dispense with
its agricultural implements? According to the thesis of M. Say one must
answer all these questions in the affirmative (pp. 135, 136).... If it is admit¬
ted that the revenue of a nation is equal to its gross product, i.e., if no
capital has to be deducted from it, then it must also be admitted that a nation
can spend the entire value of its annual product unproductively without im¬
pairing its future income in the least (147). The products which constitute
the capital of a nation are not consumable" (p. 150).

ANALYSIS OF PRODUCTION

847

Considering reproduction in its normal state, only a part of
newly added labour is employed for production, and thus for re¬
placement of constant capital; precisely that part which replaces
the constant capital used up in the production of articles of con¬
sumption, of material elements of revenue. This is balanced by
the fact that this constant portion of Class II costs no additional
labour. But, now, this constant capital (looking upon the total
process of reproduction, in which then the above-mentioned equal¬
isation of Classes I and II is included), not representing a product
of newly added labour, although this product could not be created
without it— this constant capital, in the process of reproduction,
considered from the standpoint of substance, is exposed to certain
accidents and dangers which could decimate it. (Furthermore,
however, considered from the point of view of value as well, it
may be depreciated through a change in the productiveness of
labour; but this refers only to the individual capitalist.) Accord¬
ingly, a portion of the profit, therefore of surplus-value and there¬
by also surplus-product, in which (as concerns value) only newly
added labour is represented, serves as an insurance fund. And it
matters not whether this insurance fund is managed by insurance
companies as a separate business or not This is the sole portion of
revenue which is neither consumed as such nor serves necessarily
as a fund for accumulation. Whether it actually serves as such,
or covers merely a loss in reproduction, depends upon chance.
This is also the only portion of surplus-value and surplus-product,
and thus of surplus-labour, which would continue to exist, outside
of that portion serving for accumulation, and hence expansion
of the process of reproduction, even after the abolition of the capi¬
talist mode of production. This, of course, presupposes that the
portion regularly consumed by direct producers does not remain
limited to its present minimum. Apart from surplus-labour for
those who on account of age are not yet, or no longer, able to take
part in production, all labour to support those who do not work
would cease. If we think back to the beginnings of society, we find
no produced means of production, hence no constant capital, the
value of which could pass into the product, and which, in repro¬
duction on the same scale, would have to be replaced in kind out
of the product and to a degree measured by its value. But Nature
there directly provides the means of subsistence, which need not
first be produced. Nature thereby also gives to the savage who has
but few wants to satisfy the time, not to use the as yet non¬
existent means of production in new production, but to transform,
alongside the labour required to appropriate naturally existing

848

REVENUES AND THEIR SOURCES

means of production, other products of Nature into means of
production: bows, stone knives, boats, etc. This process among sav¬
ages, considered merely from the substantive side, corresponds to
the reconversion of surplus-labour into new capital. In the process
of accumulation, the conversion of such products of excess labour
into capital obtains continually; and the circumstance that all
new capital arises out of profit, rent, or other forms of revenue, i.e.,
out of surplus-labour, leads to the mistaken idea that all value of
commodities arises from some revenue. This reconversion of profit
into capital shows rather upon closer analysis that, conversely,
the additional labour— which is always represented in the form
of revenue — does not serve for the maintenance, or reproduction
respectively, of the old capital value, but for the creation of new
excess capital so far as it is not consumed as revenue.

The whole difficulty arises from the fact that all newly added
labour, in so far as the value created by it is not resolved into
wages, appears as profit— interpreted, here as a form of surplus-value
in general — i.e., as a value which costs the capitalist nothing and
which, of course, therefore does not have to replace for him any¬
thing advanced, any capital whatever. This value thus exists in
the form of available additional wealth, in short, from the view¬
point of the individual capitalist, in the form of his revenue. But
this newly created value can just as well be consumed productively
as individually, equally well as capital or revenue. As a consequence
of its natural form, some of it must be productively consumed.
It is, therefore, evident that the annually added labour creates
capital as well as revenue; as becomes evident in the process of
accumulation. However, the portion of labour-power employed
in the creation of new capital (thus analogous to that por¬
tion of the working-day employed by a savage, not for acquiring
subsistence, but to fashion tools with which to acquire his subsist¬
ence) becomes invisible in that the entire product of surplus-
labour first appears in the form of profit; a designation which in¬
deed has nothing to do with this surplus-product itself, but refers
merely to the individual relation of the capitalist to the surplus-
value pocketed by him. In fact, the surplus-value created by the
labourer is divided into revenue and capital; i.e., into articles of
consumption and additional means of production. But former con¬
stant capital taken over from the previous year (leaving aside the
portion impaired and thus pro tanto destroyed, thus so far as it
does not have to be reproduced — and such disturbances in the proc¬
ess of reproduction fall under insurance) is not reproduced as
concerns value by the newly added labour.

ANALYSIS OF PRODUCTION

849

We see, furthermore, that a portion of the newly added labour
is continually absorbed in the reproduction and replacement of
consumed constant capital, although this newly added labour re¬
solves itself solely into revenue, into wages, profit and rent. But
it is thereby overlooked 1) that one value portion of the product
of this labour is no product of this new additional labour, but
rather pre-existing and consumed constant capital; that the por¬
tion of the product in which this part of value appears is thus also
not transformed into revenue, but replaces the means of produc¬
tion of this constant capital in kind; 2) that the portion of value
in which this newly added labour actually appears is not con¬
sumed as revenue in kind, but replaces the constant capital in an¬
other sphere, where it is transformed into a natural form, in which
it may be consumed as revenue, but which in its turn is again not
entirely a product of newly added labour.

In so far as reproduction obtains on the same scale, every con¬
sumed element of constant capital must be replaced in kind by
a new specimen of the same kind, if not in quantity and form,
then at least in effectiveness. If the productiveness of labour re¬
mains the same, then this replacement in kind implies replacing
the same value which the constant capital had in its old form.
But should the productiveness of labour increase, so that the same
material elements may be reproduced with less labour, then a
smaller portion of the value of the product can completely replace
the constant part in kind. The excess may then be employed to
form new additional capital or a larger portion of the product
may be given the form of articles of consumption, or the surplus-
labour may be reduced. On the other hand, should the produc¬
tiveness of labour decrease, then a larger portion of the product must
be used for the replacement of the former capital, and the surplus-
product decreases.

The reconversion of profit, or generally of any form of surplus-
value, into capital shows — leaving aside the historically defined
economic form and considering it merely as the simple formation
of new means of production — that the situation still prevails where¬
by the labourer performs labour to produce means of production
beyond the labour for acquiring his immediate means of subsistence.
Transformation of profit into capital is no more than employ¬
ing a portion of excess labour to form new, additional means of
production. That this takes place in the shape of a transformation
of profit into capital signifies merely that it is the capitalist
rather than the labourer who disposes of excess labour. That this
excess labour must first pass through a stage in which it appears as

850

REVENUES AND THEIR SOURCES

revenue (whereas, e.g., in the case of a savage it appears as excess
labour directly destined for the production of means of production)
means simply that this labour, or its product, is appropriated by
the non-worker. However, what is actually transformed into cap¬
ital is not profit as such. Transformation of surplus-value into
capital signifies merely that the surplus-value and surplus-product
are not consumed individually as revenue by the capitalist. But,
what is actually so transformed is value, materialised labour, or
the product in which this value is directly manifested, or for which
it is exchanged after having been previously transformed into
money. And when the profit is transformed back into capital, this
definite form of surplus-value, or profit, does not form the source
of the new capital. The surplus-value is thereby merely changed
from one form into another. But it is not this change of form which
turns it into capital. It is the commodity and its value which now
function as capital. However, that the value of the commodity is
not paid for — and only by this means does it become surplus-value
— is quite irrelevant for the materialisation of labour, the value
itself.

The misunderstanding is expressed in various forms. For in¬
stance, that the commodities which compose the constant capital
also contain elements of wages, profit and rent. Or, on the other
hand, that what is revenue for the one is capital for another, and
that therefore these are but subjective relations. Thus the yarn of
the spinner contains a portion of value representing profit for him.
Should the weaver buy the yarn, he realises the profit of the spin¬
ner, but for himself this yarn is merely a part of his constant capital.

Aside from the previous remarks made concerning the relations
between revenue and capital, the following is to be noted: That
which, as regards value, passes along with the yarn as a constit¬
uent element into the capital of the weaver, is the value of the
yarn. In what manner the parts of this value have been resolved
for the spinner himself into capital and revenue, or, in other words,
into paid and unpaid labour, is completely irrelevant for the value
determination of the commodity itself (aside from modifications
through the average profit). Back of this still lurks the idea that
the profit, or surplus-value in general, is an excess above the value
of the commodity, which can only be made by an extra charge,
mutual cheating, or gain through selling. When the price of pro¬
duction is paid, or even the value of the commodity, the compo¬
nent values of the commodity which appear to the seller in the
form of revenue are naturally also paid. Monopoly prices, of
course, are not referred to here.

ANALYSIS OF PRODUCTION

851

Secondly, it is quite correct to say that the component parts
of commodities which make up the constant capital, like any
other commodity-value, may be reduced to portions of value which
resolve themselves for the producers and the owners of the means
of production into wages, profit and rent. This is merely a capital¬
ist form of expression for the fact that all commodity-value is but
the measure of the socially necessary labour contained in a com¬
modity. But it has already been shown in Book I that this nowise
prevents the commodity-product of any capital from being split
into separate parts, of which one represents exclusively the con¬
stant portion of capital, another the variable portion of capital,
and a third solely surplus-value.

Storch expresses the opinion of many others when he says: “The
saleable products which make up the national revenue must be
considered in political economy in two different ways: relative to
individuals as values, and relative to the nation as goods; for the
revenue of a nation is not appraised, like that of an individual,
by its value, but by its utility or by the wants which it can sat¬
isfy. ” ( Considerations sur le revenu national, p. 19.)

In the first place, it is a false abstraction to regard a nation
whose mode of production is based upon value, and furthermore is
capitalistically organised, as an aggregate body working merely
for the satisfaction of the national wants.

Secondly, after the abolition of the capitalist mode of produc¬
tion, bpt still retaining social production, the determination of
value continues to prevail in the sense that the regulation of labour¬
time and the distribution of social labour among the various pro¬
duction groups, ultimately the book-keeping encompassing all
this, become more essential than ever.

CHAPTER L

ILLUSIONS CREATED BY COMPETITION

It has been shown that the value of commodities, or the price
of production regulated by their total value, resolves itself into:

1) A portion of value replacing constant capital, or represent¬
ing past labour, which was used up in the form of means of pro¬
duction in making the commodity; in a word, the value, or price,
which these means of production carried into the production
process of the commodities. We are not referring at all here to
individual commodities, but to commodity-capital, that is, the
form in which the product of the capital during a definite period
of time, say a year, manifests itself; the individual commodity
forms one element of commodity-capital, which, moreover, so
far as its value is concerned, resolves itself into the same anal¬
ogous constituents.

2) The portion of value representing variable capital, which
measures the income of the labourer and is transformed into
wages for him; i.e., the labourer has reproduced these wages in
this variable portion of value; in short, the portion of value
which represents the paid portion of new labour added to the
above constant portion in the production of the commodities.

3) Surplus-value, i.e., the portion of value of the produced
commodities in which the unpaid labour, or surplus-labour, is
incorporated. This last portion of value, in its turn, assumes
the independent forms which are at the same time forms of reve¬
nue: the forms of profit on capital (interest on capital as such and
profit of enterprise on capital as functioning capital) and ground-
rent, which is claimed by the owner of the land participating
in the production process. The components 2) and 3), that is,
the portion of value which always assumes the revenue forms of

ILLUSIONS CREATED BY COMPETITION

853

wages (of course only after the latter have first gone through
the form of variable capital), profit1 and rent, is distinguished
from the constant component 1) by the fact that in it is embodied
that entire value in which the new additional labour added to
the constant part, to the means of production of the commodi¬
ties, is materialised. Now, apart from the constant portion, it is
correct to say that the value of a commodity, i.e., to the extent
that it represents newly added labour, continually resolves
itself into three parts, which constitute three forms of revenue,
namely, wages, profit and rent,55 the respective magnitudes of
whose value, that is, the aliquot portions which they constitute
in the total value, are determined by various specific laws devel¬
oped above. But, it would be a mistake to state the converse,
namely, that the value of wages, rate of profit and rate of rent
form independent constituent elements of value, whose synthesis
gives rise to the value of commodities, apart from the constant
component; in other words, it would be a mistake to say that they
are constituent elements of the value of commodities, or of the
price of production.58

The difference is easily seen.

Let us assume that the value of the product of a capital of
500 is equal to 400c4-100v + 1508=650; let the 150s, in turn, be
divided into 75 profit+75 rent. We will also assume, in order

** In breaking down the value added to the constant portion of capital
into wages, profit and ground-rent, it goes without saying that these are
portions of value. One may, indeed, conceive of them as existing in the direct
product in which this value appears, i.e., in the direct product produced
by labourers and capitalists in some particular sphere of production — for
instance, yarn produced in the spinning industry. But in fact they do not
materialise in this product any more or any less than in any other commodi¬
ty, in any other component of the material wealth having the same value.
And in practice wages are indeed paid in money, that is, in the pure expres¬
sion of value, likewise interest and rent. For the capitalist, the transforma¬
tion of his product into the pure expression of value is indeed very impor¬
tant; in the distribution itself this transformation is already assumed. Wheth¬
er these values are reconverted into the same product, the same commodi¬
ty, out of whose production they arose, whether the labourer buys back a
part of the product directly produced by himself or buys the product of some
other labour of a different kind, has nothing to do with the matter itself.
Herr Rodbertus quite unnecessarily flies into a passion about this.

M “It will be sufficient to remark that the same general rule which reg¬
ulates the value of raw produce and manufactured commodities is applicable
also to the metals; their value depending not on the rate of profits, nor on
the rate of wages, nor on the rent paid for mines, but on the total quantity
of labour necessary to obtain the metal and to bring it to market. " (Ricardo,
Principles, Ch. Ill, p. 77.)

28— 2494

854

REVENUES AND THEIR SOURCES

to forestall useless difficulties, that this is a capital of average
composition, so that its price of production and its value coin¬
cide; this coincidence always takes place whenever the product
of such an individual capital may be considered as the product of
some portion — corresponding to its magnitude — of the total capital.

Here wages, measured by variable capital, form 20% of the
advanced capital; surplus-value, calculated on the total capital,
forms 30%, namely 15% profit and 15% rent. The entire value
component of the commodity representing the newly added
labour is equal to 100v + 150s = 250. Its magnitude does not
depend upon its division into wages, profit and rent. We see from
the relation of these parts to each other that labour-power, which
is paid with 100 in money, say £100, has supplied a quantity of
labour represented by money to the amount of £250. We see from
this that the labourer performed 1V2 times as much surplus-
labour as he did labour for himself. If the working-day=10 hours,
then he worked 4 hours for himself and 6 hours for the capital¬
ist. Therefore, the labour of the labourers paid with £100 is
expressed in a money-value of £250. Apart from this value of
£250, there is nothing to divide between labourer and capital¬
ist, between capitalist and landlord. It is the total value newly
added to the value of the means of production, i.e. , 400. The
specific commodity-value of 250 thus produced and determined
by the quantity of labour materialised in it constitutes the limit,
therefore, for the dividends which the labourer, capitalist and
landlord will be able to draw from this value in the form of
revenue — wages, profit and rent.

Let us assume that a capital of the same organic composition,
that is, the same proportion between employed living labour-
power and constant capital set in motion, is compelled to pay
£150 instead of £100 for the same labour-power which sets in
motion the constant capital of 400. And let us further assume
that profit and rent share in the surplus-value in different pro¬
portions. Since we have assumed that the variable capital of
£150 sets the same quantity of labour in motion as did the vari¬
able capital of £100, the newly produced value would =250, as
before, and the value of the total product would be 650, also as
before, but we wmuld then have 400c + 150v-i-1008; and these
1008 would divide, say, into 45 profit and 55 rent. The proportion
in which the newly produced total value would be distributed
as wages, profit and rent would now be very different; simi¬
larly, the magnitude of the advanced total capital would be
different, although it only sets the same total quantity of labour

ILLUSIONS CREATED BY COMPETITION

855

in motion. Wages would amount to 273/n%, profit — 8 2/n%, and
rent — 10% of the advanced capital; thus, the total surplus-
value would be somewhat over 18%.

As a result of the increase in wages, the unpaid portion of total
labour would be different and thereby the surplus-value too. If
the working-day contained 10 hours, the labourer would have
worked 6 hours for himself and only 4 hours for the capitalist.
The proportions of profit and rent would also be different; the
reduced surplus-value would be divided in a different proportion
between the capitalist arid the landlord. Finally, since the value
of the constant capital would have remained the same and the
value of the advanced variable capital would have risen, the
reduced surplus-value would express itself in a still more reduced
rate of gross profit, by which we mean in this case the ratio of
the total surplus-value to the total advanced capital.

The change in the value of wages, in the rate of profit, and in
the rate of rent, whatever the effect of the laws regulating the
proportions of these parts to each other, could only move within
the limits set by the newly produced commodity-value of 250.
An exception' could only take place if rent should be based on
a monopoly price. This would nowise alter the law, but merely
complicate the analysis. For if we consider only the product
itself in this case, then only the division of surplus-value would
be different. But if we consider its relative value as compared
with other commodities, then we should find solely this differ¬
ence— that a portion of the surplus-value had been transferred
from them to this particular commodity.

To recapitulate:

Value of the Product

New

Value

Rate of
Surplus-
Value

Rate of
Gross
Proht

First Case:

400C-M00v+I508=650

250

150%

30%

Second Case:

400c+150v+100s=650

250

662/3%

18*/„%

In the first place, the surplus-value falls one-third of what it
was, i.e., from 150 to 100. The rate of profit falls by a little more
than one-third, i.e., from 30% to 18%, because the reduced
surplus-value must be calculated on an increased total advanced
capital. But it by no means falls in the same proportion as the

rate of surplus-value. The latter falls from-^- to that is.

856

REVENUES AND THEIR SOURCES

from 150% to 66*/,%, whereas the rate of profit only falls from
i^to 4??-. or from 30% to 182/.,%. The rate of profit, then, falls

proportionately more than the mass of surplus-value, but less
than the rate of surplus-value. We find, furthermore, that value,
as well as mass of products, remains the same, so long as the
same quantity of labour is employed, although the advanced
capital has increased due to the augmentation of its variable
component. This increase in advanced capital would indeed be
very much felt by a capitalist undertaking a new enterprise. But
considering reproduction as a whole, augmentation of the vari¬
able capital merely means that a larger portion of the value newly
created by newly added labour is converted into wages, and
thus, in the first place, into variable capital instead of into
surplus-value and surplus-product. The value of the product thus
remains the same, because it is limited on the one hand by the
value of the constant capital =400, and on the other by the
number 250, in which the newly added labour is represented.
Both, however, remain unaltered. This product would, as before,
represent the same amount of use-value in the same magnitude
of value, to the extent that it would itself again enter into the
constant capital; thus, the same mass of elements of constant
capital would retain the same value. The matter would be different
if wages were to rise not because the labourer received a larger
share of his own labour, but if he received a larger portion of
his own labour because the labour productivity had decreased.
In this case, the total value in which the same labour, paid and
unpaid, would be incorporated, would remain the same. But
the mass of products in which this quantity of labour would
be incorporated would have decreased so that the price of each
aliquot portion of this product would rise, because each portion
would contain more labour. The increased wages of 150 would
not represent any more product than the wages of 100 did before;
the reduced surplus-value of 100 would represent merely 2/s the
former product, i.e., 66 2/s% of the mass of use-values formerly
represented by 100. In this case, the constant capital would
also become dearer to the extent that this product would enter
into it. However, this would not be the result of the increase
in wages, but rather the increase in wages would be a result
of the increase in the price of commodities and a result of the
diminished productivity of the same quantity of labour. It ap¬
pears here as though the increase in wages had made the product
dearer; however, this increase is not the cause, but rather the

ILLUSIONS CREATED BY COMPETITION

857

result, of a change in the value of the commodities, due to the
decreased productivity of labour.

On the other hand, all other circumstances remaining the
same, i.e., if the same quantity of employed labour is still rep¬
resented by 250, then, if the value of the means of production
employed should rise or fall, the value of the same quantity of
products would rise or fall by the same magnitude. 450c + 100v +
+ 150s gives a product-value=700; but 350c-f 100v+ 150s gives
a value for the same quantity of products of only 600, as
against a former 650. Hence, if the advanced capital, set in motion
by the same quantity of labour, increases or decreases, then the
value of the product rises or falls, other circumstances remain¬
ing the same, if the increase or decrease in advanced capital is
due to a change in the magnitude of the value of the constant
portion of capital. On the other hand, the value of the product remains
unchanged if the increase or decrease in advanced capital is caused
by a change in the magnitude of the value of the variable portion
of capital, assuming the labour productivity remains the same.
In the case of the constant capital, the increase or decrease in
its value is not compensated for by any opposite movement.
But in the case of the variable capital, assuming the labour
productivity remains the same, an increase or decrease in its
value is compensated for by the opposite movement on the part
of the surplus-value, so that the value of the variable capital
plus the surplus-value, i.e., the value newly added by labour
to the means of production and newly incorporated in the prod¬
uct, remains the same.

But if the increase or decrease in the value of the variable
capital or wages is due to a rise or fall in the price of commodi¬
ties, i.e., a decrease or increase in the productiveness of the labour
employed by this investment of capital then the value of the
product is affected. But the rise or fall in wages in this case is
not a cause, but merely an effect.

On the other hand, assuming the constant capital in the above
illustration to remain=400c, if the change from 100v+150s to
150t+100s, i.e., the increase in variable capital, should be due
to a decrease in the productiveness of labour, not in this particu¬
lar branch of industry, say, cotton spinning, but perhaps in
agriculture which provides the labourer’s foodstuffs, i.e., due
to a rise in the price of these foodstuffs, then the value of the
product would remain unchanged. The value of 650 would still
be represented by the same quantity of cotton yarn.

It follows, furthermore, from the above: If the decrease in

858

REVENUES AND THEIR SOURCES

the expenditure of constant capital is due to economies, etc.,
in lines of production whose products enter into the labourer’s
consumption, then this, just like the direct increase in the pro¬
ductivity of the employed labour itself, may lead to a decrease
in wages due to a cheapening of the means of subsistence of the
labourer, and may lead, therefore, to an increase in the surplus-
value; so that the rate of profit in this case would grow for two
reasons, namely, on the one hand, because the value of the con¬
stant capital decreases, and on the other hand, because the sur¬
plus-value increases. In our consideration of the transformation
of surplus-value into profit, we assumed that wages do not fall,
but remain constant, because there we had to investigate the
fluctuations in the rate of profit, independent of the changes in
the rate of surplus-value. Moreover, the laws developed there are
general ones, and also apply to investments of capital whose
products do not enter into the labourer’s consumption, whereby
changes in the value of the product, therefore, are without in¬
fluence upon the wages.

Thus, the separation and resolution of new value annually
added by new labour to the means of production, or to the constant
part of capital, into the various forms of revenue, viz., wages,
profit and rent, do not at all alter the limits of the value itself,
the total value to be distributed among these various categories;
any more than a change in the mutual relations of these individ¬
ual parts can change their total, this given magnitude of value.
The given number 100 always remains the same, whether it is
divided into 50+50, or into 20+70+10, or into 40+30+30.
The portion of the value of the product which is resolved into
these revenues is determined, just like the constant portion
of the value of capital, by the value of the commodities, i.e.,
by the quantity of labour incorporated in them in each case.
Given first, then, is the quantity of value of commodities to be
divided among wages, profit and rent; in other words, the abso¬
lute limit of the sum of the portions of value of these commodi¬
ties. Secondly, as concerns the individual categories themselves,
their average and regulating limits are likewise given. Wages
form the basis in this limitation. They are regulated on the one
hand by a natural law; their lower limit is determined by the
physical minimum of means of subsistence required by the
labourer for the conservation of his labour-power and for its
reproduction; i.e., by a definite quantity of commodities. The

ILLUSIONS CREATED BY COMPETITION

859

value of these commodities is determined by the labour-time
required for their reproduction; and thus by the portion of new
labour added to the means of production, or by the portion of
each working-day required by the labourer for the production
and reproduction of an equivalent for the value of these necessary
means of subsistence. For instance, if his average daily means
of subsistence have a value=6 hours of average labour, then he
must work on an average six hours per day for himself. The actual
value of his labour-power deviates from this physical minimum;
it differs according to climate and level of social development;
it depends not merely upon the physical, but also upon the his¬
torically developed social needs, which become second nature.
But in every country, at a given time, this regulating average
wage is a given magnitude. The value of all other revenue thus
has its limit. It is always equal to the value in which the total
working-day (which coincides in the present case with the average
working-day, sinco it comprises the total quantity of labour set
in motion by the total social capital) is incorporated minus the
portion of the working-day incorporated in wages. Its limit is
therefore determined by the limit of the value in which the
unpaid labour is expressed, that is, by the quantity of this un¬
paid labour. While the portion of the working-day which is
required by the labourer for the reproduction of the value of
his wages finds its ultimate limit in the physical minimum of
wages, the other portion of the working-day, in which surplus-
labour is incorporated, and thus the portion of value represent¬
ing surplus-value, finds its limit in the physical maximum of
the working-day, i.e., in the total quantity of daily labour¬
time during which the labourer can, in general, be active and
still preserve and reproduce his labour-power. Since we are here
concerned with the distribution of the value which represents
the total labour newly added per year, the working-day may be
regarded here as a constant magnitude, and is assumed as such,
no matter how much or how little it may deviate from its physical
maximum. The absolute limit of the portion of value which forms
surplus-value, and which resolves itself into profit and ground-
rent, is thus given. It is determined by the excess of the unpaid
portion of the working-day over its paid portion, i.e., by the
portion of the value of the total product in which this surplus-
labour exists. If we call the surplus-value thus limited and cal¬
culated on the advanced total capital — the profit, as I have
done, then this profit, so far as its absolute magnitude is con¬
cerned, is equal to the surplus-value and, therefore, its limits

860

REVENUES AND THEIR SOURCES

are just as much determined by law as the latter. On the other
hand, the level of the rate of profit is likewise a magnitude held
within certain specific limits determined by the value of commod¬
ities. It is the ratio of the total surplus-value to the total social
capital advanced in production. If this capital =500 (say millions)
and the surplus-value = 100, then 20% constitutes the absolute
limit of the rate of profit. The distribution of the social profit
according to this rate among the capitals invested in the various
spheres of production creates prices of production which deviate
from the values of commodities and which are the real regulat¬
ing average market-prices. But this deviation abolishes neither
the determination of prices by values nor the regular limits
of profit. Instead of the value of a commodity being equal to the
capital consumed in its production pins the surplus-value con¬
tained in it, its price of production is now equal to the capital,
c, consumed in its production plus the surplus-value falling to
its share as a result of the general rate of profit, for instance
20% on the capital advanced in its production, counting both
the consumed and the merely employed capital. But this addi¬
tional amount of 20% is itself determined by the surplus-value
created by the total social capital and its relation to the value
of this capital; and for this reason it is 20% and not 10 or 100.
The transformation of values into prices of production, then,
does not remove the limits on profit, but merely alters its distri¬
bution among the various particular capitals which make up
the social capital, i.e., it distributes it uniformly among them
in the proportion in which they form parts of the value of this
total capital. The market-prices rise above and fall below these
regulating prices of production, but these fluctuations mutually
balance each other. If one examines price lists over a more or
less long period of time, and if one disregards those cases in
which the actual value of commodities is altered by a change in
the productivity of labour, and likewise those cases in which
the process of production has been disturbed by natural or social
accidents, one will be surprised, in the first place, by the rela¬
tively narrow limits of the deviations, and, secondly, by the
regularity of their mutual compensation. The same domination of
the regulating averages will be found here that Quetelet pointed
out in the case of social phenomena. If the equalisation of the
values of commodities into prices of production does not meet
any obstacles, then the rent resolves itself into differential rent,
i.e., it is limited to the equalisation of the surplus-profits which
would be given to some capitalists by the regulating prices of

ILLUSIONS CREATED BY COMPETITION

801

production and which are now appropriated by the landlord.
Here, then, rent has its definite limit of value in the deviations
of the individual rates of profit, which are caused by the regula¬
tion of prices of production by the general rate of profit. If landed
property obstructs equalisation of the values of commodities
into prices of production, and appropriates absolute rent, then
the latter is limited by the excess of the value of the agricultural
products over their price of production, i.e., by the excess of
the surplus-value contained in them over the rate of profit as¬
signed to the capitals by the general rate of profit. This difference,
then, forms the limit of the rent, which, as before, is But a definite
portion of the given surplus-value contained in the commodities.

Finally, if equalisation of surplus-value into average profit
meets with obstacles in the various spheres of production in the
form of artificial or natural monopolies, and particularly mo¬
nopoly in landed property, so that a monopoly price becomes
possible, which rises above the price of production and above
the value of the commodities affected by such a monopoly, then
the limits imposed by the value of the commodities would not
thereby be removed. The monopoly price of certain commodities
would merely transfer a portion of the profit of the other commod¬
ity-producers to the commodities having the monopoly price.
A local disturbance in the distribution of the surplus-value
among the various spheres of production would indirectly take
place, but it would leave the limit of this surplus-value itself
unaltered. Should the commodity having the monopoly price
enter into the necessary consumption of the labourer, it would
increase the wage and thereby reduce the surplus-value, assum¬
ing the labourer receives the value of his labour-power as before.
It could depress wages below the value of labour-power, but
only to the extent that the former exceed the limit of their physi¬
cal minimum. In this case the monopoly price would be paid
by a deduction from real wages (i.e.. the quantity of use-values
received by the labourer for the same quantity of labour) and
from the profit of the other capitalists. The limits within which
the monopoly price would affect the normal regulation of the
prices of commodities would be firmly fixed and accurately
ralculable.

Thus just as the division of the newly added value of commodi¬
ties, and, in general, value resolvable into revenue, finds its given
and regulating limits in the relation between necessary and
surplus labour, wages and surplus-value, so does the division of
surplus-value itself into profit and ground-rent find its limits

862

REVENUES AND THEIR SOURCES

in the laws regulating the equalisation of the rate of profit. As
regards the division into interest and profit of enterprise, the
average profit itself forms the limit for both taken together. It
furnishes the given magnitude of value which they may split
among themselves and which alone can be so divided. The spe¬
cific ratio of this division is here fortuitous, i.e., it is determined
exclusively by conditions of competition. Whereas in other cases
the balancing of supply and demand is equivalent to elimination
of the deviations in market-prices from their regulating average
prices, i.e., elimination of the influence of competition, it is
here the only determinant. But why? Because the same production
factor, capital, has to divide its share of the surplus-value between
two owners of the same production factor. But the fact that there
is no definite, regular limit here for the division of the average
profit does not remove its limit as part of the commodity-value;
just as the fact that two partners in a certain business divide
their profit unequally due to different external circumstances
does not affect the limits of this profit in any way.

Hence, although the portion of the commodity-value in which
the new labour added to the value of the means of production is
incorporated is divided into various parts, which in the form of
revenue assume mutually independent forms, this is no reason
for now considering wages, profit and ground-rent as the constit¬
uent elements which, in combination or taken all together, are
the source of the regulating price (natural price, prix necessaire)
of the commodities themselves; so that it is not the commodity-
value, after deducting the constant portion of value, which
would be the original unit that divides into these three parts,
but rather, conversely, the price of each of these three parts
would be independently determined, and the price of the commod¬
ities would then be formed by adding these three independent
magnitudes together. In reality, the commodity-value is the
magnitude which precedes the sum of the total values of wages,
profit and rent, regardless of the relative magnitudes of the latter.
In the above erroneous conception, wages, profit and rent are
three independent magnitudes of value, whose total magnitude
produces, limits and determines the magnitude of the commodity-
value.

In the first place it is evident that if wages, profit and rent
were to form the price of commodities, this would apply as much
to the constant portion of the commodity-value as to the other
portion, in which variable capital and surplus-value are incor¬
porated. Thus, this constant portion may here be left entirely

ILLUSIONS CREATED BY COMPETITION

863

out of consideration, since the value of the commodities of which
it is composed would likewise resolve itself into the sum of the
values of wages, profit and rent. As, already noted, this concep¬
tion, then, denies the very existence of such a constant portion
of value.

It is furthermore evident that value loses all meaning here.
Only the conception of price still remains, in the sense that a
certain amount of money is paid to the owner of labour-power,
capital and land. But what is money? Money is not a thing,
but a definite form of value, hence, value is again presupposed.
Let us say, then, that a definite amount of gold or silver is paid
for these elements of production, or that it is mentally equated
to them. But gold and silver (and the enlightened economist
is proud of this discovery) are themselves commodities like all
other commodities. The price of gold and silver is therefore
likewise determined by wages, profit and rent. Hence we cannot
determine wages, profit and rent hy equating them to a certain
amount of gold and silver, for the value of this gold and silver,
by means of which they should be evaluated as in their equiv¬
alent, should be first determined precisely by them, independ¬
ently of gold and silver, i.e., independently of the value of
any commodity, which value is precisely the product of the above
three factors. Thus, to say that the value of wages, profit and
rent consists in their being equivalent to a certain quantity of
gold and silver, would merely be saying that they are equal
to a certain quantity of wages, profit and rent.

Take wages first. For it is necessary to make labour the point
of departure, even in this view of the matter. How, then, is the
regulating price of wages determined, the price about which its
market-prices oscillate?

Let us say that it is determined by the supply and demand of
labour-power. But what sort of labour-power demand is this?
It is a demand made by capital. The demand for labour is there¬
fore tantamount to the supply of capital. In order to speak of
a supply of capital, we should know above all what capital is.
Of what does capital consist? If we take its simplest aspect, it
consists of money and commodities. But money is merely a
commodity-form. Capital, then, consists of commodities. But
the value of commodities, according to our assumption, is deter¬
mined, in the first instance, by the price of the labour producing
the commodities, by wages. Wages are here presupposed and
are treated as a constituent element of the price of commodi¬
ties. This price then should be determined by the ratio of

864

REVENUES AND THEIR SOURCES

available labour to capital. The price of the capital itself is equal
to the price of the commodities of which it is composed. The
demand by capital for labour is equal to the supply of capital.
And the supply of capital is equal to the supply of a quantity of
commodities of given price, and this price is regulated in the
first place by the price of labour, and the price of labour in turn
is equal to that portion of the commodity-price constituting the
variable capital, which is granted to the labourer in exchange
for his labour; and the price of the commodities constituting
this variable capital is again determined, in turn, primarily by
the price of labour; for it is determined by the prices of wages,
profit and rent. In order to determine wages, we cannot, there¬
fore, presuppose capital, for the value of the capital is itself
determined in part by wages.

Moreover, dragging competition into this problem does not
help at all. Competition makes the market-prices of labour rise
or fall. But suppose supply and demand of labour are balanced.
How are wages then determined? By competition. But we have
just assumed that competition ceases to act as a determinant,
that its influence is cancelled due to equilibrium between its
two mutually opposing forces. Indeed, it is precisely the natural
price of wages that we wish to find, i.e., the price of labour that
is not regulated by competition, but which, on the contrary,
regulates the latter.

Nothing remains but to determine the necessary price of labour
by the necessary means of subsistence of the labourer. But these
means of subsistence are commodities, which have a price. The
price of labour is therefore determined by the price of the necessary
means of subsistence and the price of the means of subsistence,
like that of all other commodities, is determined primarily by
the price of labour. Therefore, the price of labour determined
by the price of the means of subsistence is determined by the
price of labour. The price of labour is determined by itself. In
other words, we do not know how the price of labour is deter¬
mined. Labour in this case has a price in general, because it is con¬
sidered as a commodity. In order, therefore, to speak of the price
of labour, we must know what price in general is. But we do not
learn at all in this way what price in general is.

Nevertheless, let us assume that the necessary price of labour
is determined in this agreeable manner. Then how is the average
profit determined, the profit of every capital under normal con¬
ditions, which constitutes the second element in the price of
commodities? The average profit must be determined by an

ILLUSIONS CREATED BY COMPETITION

865

average rate of profit; how is this rate determined? By compe¬
tition among the capitalists? But the competition already pre¬
supposes the existence of profit. It presupposes various rates
of profit, and thus various profits — either in the same or in differ¬
ent spheres of production. Competition can influence the rate of
profit only to the extent that it affects the prices of commodi¬
ties. Competition can only make the producers within the same
sphere of production sell their commodities at the same prices,
and make them sell their commodities in different spheres of
production at prices which will give them the same profit, the
same proportional addition to the price of commodities which
has already been partially determined by wages. Hence compe¬
tition can only equalise inequalities in the rate of profit. In
order to equalise unequal rates of profit, profit must exist as
an element in the price of commodities. Competition does not
create it. It lowers or raises its level, but does not create the
level which is established when equalisation has been achieved.
And when we speak of a necessary rate of profit, what we wish
to know is precisely the rate of profit independent of the move¬
ments of competition, which in turn regulates competition itself.
The average rate of profit sets in when there is an equilibrium
of forces among the competing capitalists. Competition may
establish this equilibrium but not the rate of profit which makes
its appearance with this equilibrium. When this equilibrium is
established, why is the general rate of profit now 10, or 20, or
100%? Because of competition? No, on the contrary, competi¬
tion has eliminated the causes producing deviations from 10, 20,
or 100%. It has brought about a commodity-price whereby
every capital yields the same profit ih proportion to its magni¬
tude. The magnitude of this profit itself, however, is independ¬
ent of competition. The latter merely reduces, again and again,
all deviations to this magnitude. One person competes with
another, and competition compels him to sell his commodities
at the same price as the other. But why i3 this price 10 or 20 or
100?

Thus, nothing remains but to declare rate of profit, and there¬
fore profit, to be in some unaccountable manner a definite extra
charge added to the price of commodities, which up to this point
was determined by wages. The only thing that competition tells
us is that this rate of profit must be a given magnitude. But
we knew this before — when we dealt with general rate of profit
and “necessary price” of profit.

It is quite unnecessary to wade through this absurd process

866

REVENUES AND THEIR SOURCES

anew in the case of ground-rent. One can see without doing this
that, when carried out more or less consistently, it makes profit
and rent merely appear as definite extra charges added by unac¬
countable laws to the price of commodities, a price primarily
determined by wages. In short, competition has to shoulder
the responsibility of explaining all the meaningless ideas of the
economists, whereas it should rather be the economists who
explain competition.

Now, disregarding here the illusion of a profit and rent being
created by circulation, i.e., price components arising through
sale — and circulation can never give what it did not first receive —
the matter simply amounts to this:

Let the price of a commodity determined by wages = 100-
let the rate of profit be 10% of wages, and the rent 15% of wages.
Then the price of the commodity determined by the sum of wages,
profit and rent = 125. This additional 25 cannot arise from the
sale of the commodity. For all who sell one another commodities
sell at 125 that which costs 100 in wages; which is the same as
if they had all sold at 100. Thus, the operation must be consid¬
ered independently of the circulation process.

If the three share the commodity itself, which now costs 125 —
and it does not alter matters any if the capitalist first sells at
125, and then pays 100 to the labourer, 10 to himself, and 15
to the landlord— the labourer receives 4/B= 100 of the value and
of the product. The capitalist receives 2/25 of the value and of
the product, and the landlord 3/25. Since the capitalist sells at
125 instead of 100, he gives the labourer only */6 of the product
incorporating the latter’s labour. Thus, it would be just the
same as if he had given 80 to the labourer and retained 20 — of
which 8 would fall to his share and 12 to the landlord. In this
case he would have sold the commodity at its value, since in
fact the additions to the price represent increases that are in¬
dependent of the value of the commodity, which under the assump¬
tion made above is determined by the value of wages. This,
in a roundabout way, amounts to saying that according to this
conception the term “wages,” here 100, means the value of the
product, i.e., the sum of money in which this definite quantity
of labour is represented; but that this value in turn differs from
the real wage and therefore leaves a surplus. But, here the surplus
is realised by a nominal addition to the price. Hence, if wages
were equal to 110 instead of 100, the profit would have to be = 11
and the ground-rent 16V2, so that the price of the commodity
would 1371/2. This would leave the proportions unaltered. But

ILLUSIONS CREATED BY COMPETITION

867

since the division would always be obtained by way of a nominal
addition of definite percentages to wages, the price would rise
and fall with the wages. Wages are here first set equal to the
value of the commodity, and then divorced from it again. In
fact, however, this amounts to saying in a roundabout and mean¬
ingless way that the value of the commodity is determined by
the quantity of labour contained in it, whereas the value of
wages is determined by the price of the necessary means of sub¬
sistence, and the excess of value above the wage forms profit
and rent.

The splitting of the value of commodities after subtracting the
value of the means of production consumed in their creation;
the splitting of this given quantity of value, determined by the
quantity of labour incorporated in the produced commodities,
into three component parts, which assume, as wages, profit and
rent, independent and mutually unrelated forms of revenue —
this splitting appears in a perverted form on the surface of capital¬
ist production, and consequently in the minds of those captivated
by the latter.

Let the total value of a certain commodity = 300, of which
200 is the value of the means of production, or elements of con¬
stant capital, consumed in its production. This leaves 100 as
the amount of new value added to the commodity during its
process of production. This new value of 100 is all that is available
for division among the three forms of revenue. If we let wages = x,
profit = y and ground-rent = z, then the sum of x-f-y+z will
always = 100 in our case. But to the industrialists, merchants
and bankers, and to the vulgar economists, this appears quite
different. For them, the value of the commodity, after subtract¬
ing the value of the means of production consumed by it, is not
given = 100, this 100 then being divided into x, y and z. But
rather, the price of the commodity simply consists of the value
of wages, the value of profit and the value of rent, which magni¬
tudes are determined independently of the value of the commodity
and of each other, so that x, y and z are each given and deter¬
mined independently, and only from the sum of these magnitudes,
which may be smaller or larger than 100, is the magnitude of
the value of the commodity itself obtained by adding these
component values together. This quid pro quo is inevitable
because:

First: The component parts of the value of a commodity,
appear as independent revenues in relation to one another, and
as such are related to three very dissimilar production factors,

868

REVENUES AND THEIR SOURCES

namely labour, capital and land, and therefore they seem to
arise from the latter. Ownership of labour-power, capital and
land is the cause for these various component values of commod¬
ities falling to the share of the respective owners, and thus
transforming themselves into revenue for them. But the value
does not arise from a transformation into revenue; it must rather
exist before it can be converted into revenue, before it can assume
this form. The illusion that the opposite is true is strengthened
all the more as the determination of the relative magnitudes
of these three components in relation to one another follows
different laws, whose connection with, and limitation by, the
value of the commodities themselves nowise appear on the
surface.

Secondly: We have seen that a general rise or fall in wages,
by causing a movement of the general rate of profit in the
opposite direction — other circumstances remaining the same —
changes the prices of production of the various commodities, i.e.,
raises some and lowers others, depending on the average com¬
position of capital in the respective spheres of production. Thus,
experience shows here that in some spheres of production, at any
rate, the average price of a commodity rises because wages have
risen, and falls because wages have fallen. But “experience”
does not show that the value of commodities, which is independ¬
ent of wages, secretly regulates these changes. However, if the
rise in wages is local, if it only takes place in particular spheres
of production as a result of special circumstances, then a corre¬
sponding nominal rise in the prices of these commodities may
occur. This rise in the relative value of one kind of commodity
in relation to the others, for which wages have remained un¬
changed, is then merely a reaction against the local disturbance
in the uniform distribution of surplus-value among the various
spheres of production, a means of equalising the particular rates
of profit into the general rate. “Experience” shows in this case
that wages again determine the price. Thus, in both of these cases
experience shows that wages determine the prices of commodi¬
ties. But “experience” does not show the hidden cause of this
interrelation. Furthermore: The average price of labour, i.e., the
value of labour-power, is determined by the production price of
the necessary means of subsistence. If the latter rises or falls,
the former rises or falls accordingly. Thus, experience again
shows the existence of a connection between wages and the price
of commodities. But the cause may appear as an effect, and the
effect as a cause, which is also the case in the movements of

ILLUSIONS CREATED BY COMPETITION

869

market-prices, where a rise of wages above their average corre¬
sponds to the rise of market-prices above the prices of production
during periods of prosperity, and the subsequent fall of wages
below their average corresponds to a fall of market-prices below
the prices of production. To the dependence of prices- of produc¬
tion upon the values of commodities prima facie there would
always have to correspond, apart from the oscillatory move¬
ments of market-prices, the experience that whenever wages
rise the rate of profit falls, and vice versa. But we have seen
that the rate of profit may be determined by movements in the
value of constant capital, independently of the movements of
wages; so that wages and rate of profit, instead of moving in
opposite directions, may move in the same direction, may rise
or fall together. If the rate of surplus-value were to directly coin¬
cide with the rate of profit, this would not be possible. Similarly
if wages should rise as a result of a rise in the prices of the means
of subsistence, the rate of profit may remain the same, or even
rise, due to greater intensity of labour or prolongation of the
working-day. All these experiences bear ont the illusion created
by the independent and distorted form of the component values,
namely, that either wages alone, or wages and profit together,
determine the value of commodities. Once such an illusion ap¬
pears with respect to wages, once the price of labour and the value
created by labour seem to coincide, the same automatically applies
to profit and rent. Their prices, i.e., their money-expression,
must then be regulated independently of labour and of the value
created by the latter.

Thirdly. Let us assume that according to direct experience the
values of a commodity, or the prices of production — which
merely appear to be independent of the values— always coincide
with the market-prices of the commodity rather than merely
prevailing as the regulating average prices by constant com¬
pensation of the continual fluctuations in market-price. Let us
assume, furthermore, that reproduction always takes place under
the same unaltered conditions, i.e., labour productivity remains
constant in all elements of capital. Finally, let us assume that
the component value of the commodity-product, which is formed
in every sphere of production by the addition of a new quantity
of labour — i.e., a newly produced value — to the value of the
means of production, always splits into constant proportions of
wages, profit and rent, so that the wage actually paid always
directly coincides with the value of labour-power, the profit
actually realised — with the portion of the total surplus-value

870

REVENUES AND THEIR SOURCES

which falls to the share of every independently functioning
part of the total capital by virtue of the average rate of profit,
and the actual rent is always limited by the bounds within which
ground-rent on this basis is normally confined. In a word, let
us assume that the division of the socially produced values and
the regulation of the prices of production takes place on a capital¬
ist basis, but that competition is eliminated.

Thus, under these assumptions, namely, if the value of commod¬
ities were constant and appeared so, if the component value of
the commodity-product which resolves itself into revenues were
to remain a constant magnitude and always appeared as such,
and finally, if this given and constant component value always
split into constant proportions of wages, profit and rent — even
under these assumptions, the real movement would necessarily
appear in distorted form; not as the splitting of a previously
given magnitude of value into three parts which assume mutually
independent forms of revenue, but, on the contrary, as the for¬
mation of this magnitude of value from the sum of the independ¬
ent and separately determined, each by itself, constituent
elements — wages, profit and ground-rent. This illusion would
necessarily arise, because in the actual movement of individual
capitals, and the commodities produced by them, not the value
of commodities would appear to be a precondition of its split¬
ting but, conversely, the components into which it is split function
as a precondition of the value of the commodities. In the first
place, we have seen that to every capitalist the cost-price of
his commodities appears as a given magnitude and continually
appears as sueh in the actual price of production. The cost-price,
however, is equal to the value of the constant capital, the ad¬
vanced means of production, plus the value of labour-power,
which, however, appears to the agent of production in the irra¬
tional form of the price of labour, so that wages simultaneously
appear as revenue of the labourer. The average price of labour
is a given magnitude, because the value of labour-power, like
that of any other commodity, is determined by the necessary
labour-time required for its reproduction. But as concerns that
portion of the value of commodities which is embodied in wages,
it does not arise from the fact that it assumes this form of wages,
that the capitalist advances to the labourer his share of his own
product in the form of wages, but from the fact that the labourer
produces an equivalent for his wages, i.e., that a portion of his
daily or annual labour produces the value contained in the price
of his labour-power. But wages are stipulated by contract, before

ILLUSIONS CREATED BY COMPETITION

871

therr corresponding value equivalent has been produced As an
element of price, whose magnitude is given before the commodity
and its value have been produced, as a constituent part of the
cost-price, wages thereby do not appear a9 a portion which
detaches itself in independent form from the total value of the
commodity, but rather, conversely, as a given magnitude, which
predetermines this value, i.e., as a creator of price and value.
A role similar to that of wages in the cost-price of commodities
is played by the average profit in their price of production, for
the price of production is equal to cost-price plus average profit
on the advanced capital. This average profit figures practically,
in the mind and calculation of the capitalist himself, as a regulat¬
ing element, not merely in so far as it determines the transfer
of capitals from one sphere of investment into another, but also
in all sales and contracts which embrace a process of reproduction
extending over long periods. But so far as it figures in this manner,
it is a pre-existent magnitude, which is in fact independent of
the value and surplus-value produced in any particular sphere
of production, and thus even more so in the case of any individual
investment of capital in any sphere of production. Rather than
appearing as a result of a splitting of value, it manifests itself
much more as a magnitude independent of the value of the pro¬
duced commodities, as pre-existing in the process of production
of commodities and itself determining the average price of the
commodities, i.e., as a creator of value. Indeed, the surplus-
value, owing to the separation of its various portions into mu¬
tually, completely unrelated forms, appears in still more concrete
form as a prerequisite for creating commodity-value. A part of
the average profit in the form of interest confronts the function¬
ing capitalist independently as an assumed element in the pro¬
duction of commodities and of their value. No matter how much
the magnitude of the interest fluctuates, at each moment and for
every capitalist it is a given magnitude entering into the cost-
price of the commodities produced hy him as individual capital¬
ist. The same role is played by ground-rent in the form of lease
money fixed Dy contract for the agricultural capitalist, and in
the form of rent for business premises in the case of other entre¬
preneurs. These portions into which surplus-value is split, being
given as elements of cost-price for the individual capitalist,
appear conversely therefore as creators of surplus-value; creators
of a portion of the price of commodities, just as wages create
the other. The secret wherefore these products of the splitting
of commodity-value constantly appear as prerequisites for the

872

REVENUES AND THEIR SOURCES

formation of value itself is simply this, that the capitalist mode
of production, like any other, does not merely constantly repro¬
duce the material product, but also the social and economic
relations, the characteristic economic forms of its creation. Its
result, therefore, appears just as constantly presupposed by it,
as its presuppositions appear as its results. And it is this continual
reproduction of the same relations which the individual capital¬
ist anticipates as self-evident, as an indubitable fact. So long as
the capitalist mode of production persists as such, a portion of
the newly added labour continually resolves itself into wages,
another into profit (interest and profit of enterprise), and a third
into rent. In contracts between the owners of various agencies
of production this is always assumed, and this assumption is
correct, however much the relative proportions may fluctuate in
individual cases. The definite form in which the parts of value
confront each other is presupposed because it is continually
reproduced, and it is continually reproduced because it is con¬
tinually presupposed.

To be sure, experience and appearance now also demonstrate
that market-prices, in whose influence the capitalist actually
sees the only determination of value, are by no means dependent
upon such anticipation, so far as their magnitude is concerned;
that they do not correspond to whether the interest or rent were
set high or low. But the market-prices are constant only in their
variation, and their average over longer periods results precisely
in the respective averages of wages, profit and rent as the con¬
stant magnitudes, and therefore, in the last analysis, those domi¬
nating the market-prices.

On the other hand, it seems plain on reflection that if wages,
profit and rent are creators of value since they seem to be presup¬
posed in the production of value, and are assumed by the individ¬
ual capitalist in his cost-price and price of production, then the
constant portion, whose value enters as given into the production
of every commodity, is also a creator of value. But the constant
portion of capital is no more than a sum of commodities and,
therefore, of commodity-values. Thus we should arrive at the
absurd tautology that commodity-value is the creator and cause
of commodity-value.

However, if the capitalist were at all interested in reflecting
about this — and his reflections as capitalist are dictated exclu¬
sively by his interests and self-interested motives — experience
would show him that the product which he himself produces
enters into other spheres of production as a constant portion

ILLUSIONS CREATED BY COMPETITION

873

of capital, and that products of these other production spheres
enter into his own product as constant portions of capital. Since
the additional value, so far as his new production is concerned,
seems to be formed, from his point of view, by the magnitudes
of wages, profit and rent, then this also holds good for the con¬
stant portion consisting of the products of other capitalists. And
thus, the price of the constant portion of capital, and thereby the
total value of the commodities, reduces itself in the final anal¬
ysis, although in a manner which is somewhat unaccountable, to
a sum of values resulting from the addition of independent crea¬
tors of value— wages, profit and rent — which are regulated accord¬
ing 'to different laws and arise from different sources.

Fourthly: Whether the commodities are sold at their values
or not, and hence the determination of value itself, is quite
immaterial for the individual capitalist. It is, from the very
outset, a process that takes place behind his back and is con¬
trolled by the force of circumstances independent of himself,
becajuse it is not the values, but the divergent prices of production,
which form the regulating average prices in every sphere of
production. The determination of value as such interests and has
a determining effect on the individual capitalist and the capital
in each particular sphere of production only in so far as the
reduced or increased quantity of labour required to produce
commodities, as a consequence of a rise or fall in productiveness
of labour, enables him in one instance to make an extra profit,
at the prevailing market-prices, and compels him in another to
raise the price of his commodities, because more wages, more
constant capital, and thus more interest, fall upon each portion
of the product, or individual commodity. It interests him only
in so far as it raises or lowers the cost of production of commod¬
ities for himself, thus only in so far as it makes his position
exceptional.

On the other hand, wages, interest and rent appear to him as
regulating limits not only of the price at which he can realise
the profit of enterprise, the portion of profit falling to his share
as functioning capitalist, but also at which he must generally
be able to sell his commodities, if continued reproduction is to
take place. It is quite immaterial to him whether or not he real¬
ises, through sale, the value and surplus-value incorporated in
his commodities, provided only that he makes the customary,
or larger, profit of enterprise at given prices, over and above his
individual cost-price determined by wages, interest and rent.
Apart from the constant portion of capital — wages, interest and

874

REVENUES AND THEIR SOURCES

rent appear to him, therefore, as the limiting and thereby pro¬
ductive determining elements of the commodity-price. Should he
succeed, e.g., in depressing wages below the value of labour-
power, i.e., below its normal level, in obtaining capital at a
lower interest rate, and in paying less lease money than the
normal amount for rent, then it is completely irrelevant to him
whether he sells his product below its value, or even below the
general price of production, thereby giving away gratis a portion
of the surplus-labour contained in the commodities. This also
applies to the constant portion of capital. If an industrialist,
e.g., can buy his raw material below its price of production,
then this buffers him against loss, even should he sell it in the
finished product under its price of production. His profit of
enterprise may remain the same, or even increase, if only the
excess of the commodity-price over its elements, which must
be paid, replaced by an equivalent, remains the same or increases.
But aside from the value of the means of production which enter
into the production of his commodities as a given price magni¬
tude, it is precisely wages, interest and rent which enter into
this production as limiting and regulating price magnitudes.
Consequently they appear to him as the elements determining
the price of the commodities. Profit of enterprise, from this
standpoint, seems to be either determined by the excess of market-
prices, dependent upon accidental conditions of competition,
over the immanent value of commodities determined by the
above-mentioned elements of price; or, to the extent that this
profit itself exerts a determining influence upon market-prices,
it seems itself, in turn, dependent upon the competition between
buyers and sellers.

In the competition of individual capitalists among themselves
as well as in the competition on the world-market, it is the given
and assumed magnitudes of wages, interest and rent which enter
into the calculation as constant and regulating magnitudes; con¬
stant not in the sense of being unalterable magnitudes, but in
the sense that they are given in each individual case and con¬
stitute the constant limit for the continually fluctuating market-
prices. For instance, in competition on the world-market it is
solely a question of whether commodities .can be sold advan¬
tageously with existing wages, interest and rent at, or below,
existing general market-prices, i.e., realising a corresponding
profit of enterprise. If wages and the price of land are low in one
country, while interest on capital is high, because the capitalist
mode of production has not been developed generally, whereas

ILLUSIONS CREATED BY COMPETITION

875

in another country wages and the price of land are nominally
high, while interest on capital is low, then the capitalist employs
more labour and land in the one country, and in the other rela¬
tively more capital. These factors enter into calculation as deter¬
mining elements in so far as competition between these two
capitalists is possible. Here, then, experience shows theoretically,
and the self-interested calculation of the capitalist shows practi¬
cally, that the prices of commodities are determined by wages,
interest and rent, by the price of labour, capital and land, and
that these elements of price are indeed the regulating constit¬
uent factors of price.

Of course, there always remains an element here which is not
assumed, but which results from the market-price of commodities,
namely, the excess above the cost-price formed by the additioh
of the aforementioned elements: wages, interest and rent. This
fourth element seems to be determined by competition in each
individual case, and in the average case by the average profit,
which in its turn is regulated by this same competition, only
over longer periods.

Fifthly. On the basis of the capitalist mode of production, -it
becomes so much a matter of course to split up the value, in
which newly added labour is represented, into the forms of reve¬
nue, of wages, profit and ground-rent, that this method is applied
(leaving aside earlier stages of history, from which we gave
illustrations in our study of ground-rent) even where the precon¬
ditions for these forms of revenue are missing. That is, all is
subsumed by analogy) under these forms of revenue.

When an independent labourer — let us take a small farmer,
since all three forms of revenue may here bo applied — works for
himself and sells his ^own product, he is first considered as his
own employer (capitalist), who makes use of himself as a labourer,
and second as his owri landlord, who makes use of himself as his
own tenant. To himself as wage-worker he pays wages, to himself
as capitalist he gives the profit, and to himself as landlord he
pays rent. Assuming the capitalist mode of production and the
relations corresponding to it to be the general basis of society,
this subsumption is correct, in so far as it is not thanks to his
labour, but to his ownership of means of production — which have
assumed here the general form of capital — that he is in a position
to appropriate his own surplus-labour. And furthermore, to the
extent that he produces his product as commodities, and thus
depends upon its price (and even if not, this price is calculable),
the quantity of surplus-labour which he can realise depends not

876

REVENUES AND THEIR SOURCES

on its own magnitude, but on the general rate of profit; and
likewise any eventual excess above the amount of surplus-value
determined by the general rate of profit is, in turn, not deter¬
mined by the quantity of labour performed by him, but can be
appropriated by him only because he is owner of the land. Since
such a form of production not corresponding to the capitalist
mode of production may thus be subsumed under its forms of
revenue — and to a certain extent not incorrectly — the illusion is
all the more strengthened that capitalist relations are the natural
relations of every mode of production.

Of course, if wages are reduced to their general basis, namely,
to that portion of the product of the producer’s own labour which
passes over into the individual consumption of the labourer; if
we relieve this portion of its capitalist limitations and extend
it to that volume of consumption which is permitted, on the one
hand, by the existing productivity of society (that is, the social
productivity of his own individual labour as actually social),
and which, on the other hand, the full development of the indi¬
viduality requires; if, furthermore, we reduce the surplus-labour
and surplus-product to that measure which is required under
prevailing conditions of production of society, on the one side
to create an insurance and reserve fund, and on the other to
constantly expand reproduction to the extent dictated by social
needs; finally, if we include in No. 1 the necessary labour, and
in No. 2 the surplus-labour, the quantity of labour which must
always be performed by the able-bodied in behalf of the immature
or incapacitated members of society, i.e., if we strip both wages
and surplus-value, both necessary and surplus labour, of their
specifically capitalist character, then certainly there remain not
these forms, but merely their rudiments, which are common to
all social modes of production.

Moreover, this method of subsumption was also characteristic
of previous dominant modes of production, e.g., feudalism.
Production relations which nowise corresponded to it, standing
entirely beyond it, were subsumed under feudal relations, e.g.,
in England, the tenures in common socage (as distinct from
tenures on knight’s service), which comprised merely monetary
obligations and were feudal in name only.

CHAPTER LI

DISTRIBUTION RELATIONS
AND PRODUCTION RELATIONS

The new value added by the annual newly added labour— and
thus also that portion of the annual product in which this value
is represented and which may be drawn out of the total output and
separated from it — is thus split into three parts, which assume
three different forms of revenue, into forms which express one
portion of this value as belonging or falling to the share of the
owner of labour-power, another portion to the owner of capital,
and a third portion to the owner of landed property. These,
then, are relations, or forms of distribution, for they express
the relations under which the newly produced total value is
distributed among the owners of the various production factors

From the common viewpoint these distribution relations
appear as natural relations, as relations arising directly from
the nature of all social production, from the laws of human
production in general. It cannot, indeed, be denied that pre¬
capitalist societies disclose other modes of distribution, but the
latter are interpreted as undeveloped, unperfected and disguised,
not reduced to their purest expression and their highest form and
differently shaded modes of the natural distribution relations.

The only correct aspect of this conception is: Assuming some
form of social production to exist (e.g., primitive Indian com¬
munities, or the more ingeniously developed communism of
the Peruvians), a distinction can always be made between that
portion of labour whose product is directly consumed individ¬
ually by the producers and their families and— aside from the
part which is productively consumed— that portion of labour
which is invariably surplus-labour, whose product serves con¬
stantly to satisfy the general social needs, no matter how this

878

REVENUES AND THEIR SOURCES

surplus-product may be divided, and no matter who may function
as representative of these social needs. Thus, the identity of
the various modes of distribution amounts merely to this: they
are identical if we abstract from their differences and specific
forms and keep in mind only their unity as distinct from their
dissimilarity.

A more advanced, more critical mind, however, admits the
historically developed character of distribution relations,663 but
nevertheless clings all the more tenaciously to the unchanging
character of production relations themselves, arising from human
nature and thus independent of all historical development.

On the other hand, scientific analysis of the capitalist mode
of production demonstrates the contrary, that it is a mode of
production of a special kind, with specific historical features;
that, like any other specific mode of production, it presupposes
a given level of the social productive forces and their forms of
development as its historical precondition: a precondition which
is itself the historical result and product of a preceding process,
and from which the new mode of production proceeds as its
given basis; that the production relations corresponding to this
specific, historically determined mode of production— relations
which human beings enter into during the process of social life,
in the creation of their social life — possess a specific, historical
and transitory character; and, finally, that the distribution
relations essentially coincident with these production relations
are their opposite side, so that both share the same historically
transitory character.

In the study of distribution relations, the initial point of depar¬
ture is the alleged fact that the annual product is apportioned
among wages, profit and rent. But if so expressed, it is a mis¬
statement. The product is apportioned on one side to capital,
on the other to revenue. One of these revenues, wages, never
itself assumes the form of revenue, revenue of the labourer,
until after it has first confronted this labourer in the form of
capital. The confrontation of produced conditions of labour and
of the products of labour generally, as capital, with the direct
producers implies from the outset a definite social character of
the material conditions of labour in relation to the labourers,
and thereby a definite relationship into which they enter with
the owners of the means of production and among themselves

Ma J. Stuart Mill, Some Unsettled Questions in Political Economy, Lon¬
don, 1844.

DISTRIBUTION RELATIONS AND PRODUCTION RELATIONS

879

during production itself. The transformation of these condi¬
tions of labour into capital implies in turn the expropriation of
the direct producers from the land, and thus a definite form of
landed property.

If one portion of the product were not transformed into capital,
the other would not assume the forms of wages, profit and rent.

On the other hand, if the capitalist mode of production presup¬
poses this definite social form of the conditions of production, so
does it reproduce it continually. It produces not merely the
material products, but reproduces continually the production
relations in which the former are produced, and thereby also the
corresponding distribution relations.

It may be said, of course, that capital itself (and landed proper¬
ty which it includes as its antithesis) already presupposes a distri¬
bution: the expropriation of the labourer from the conditions of
labour, the concentration of these conditions in the hands of a
minority of individuals, the exclusive ownership of land by other
individuals, in short, all the relations which have been described
in the part dealing with primitive accumulation (Buch I, Kap.
XXIV)*. But this distribution differs altogether from what is
understood by distribution relations when the latter are endowed
with a historical character in contradistinction to production
relations. What is meant thereby are the various titles to that
portion of the product which goes into individual consumption,
The aforementioned distribution relations, on the contrary, are
the basis of special social functions performed within the pro¬
duction relations by certain of their agents, as opposed to the
direct producers. They imbue the conditions of production them¬
selves and their representatives with a specific social quality.
They determine the entire character and the entire movement
of production.

Capitalist production is distinguished from the outset by two
characteristic features.

First. It produces its products as commodities. The fact that
it produces commodities does not differentiate it from other modes
of production; but rather the fact that being a commodity is the
dominant and determining characteristic of its products. This im¬
plies, first and foremost, that the labourer himself comes forward
merely as a seller of commodities, and thus as a free wage-labourer,
so that labour appears in general as wage-labour. In view of what
has already been said, it is superfluous to demonstrate anew that

* English edition: Part VIII. — Ed.

880

REVENUES AND THEIR SOURCES

the relation between capital and wage-labour determines the
entire character of the mode of production. The principal agents
of this mode of production itself, the capitalist and the wage-
labourer, are as such merely embodiments, personifications of
capital and wage-labour; definite social characteristics stamped
upon individuals by the process of social production; the prod¬
ucts of these definite social production relations.

The characteristic 1) of the product as a commodity, and 2) of
the commodity as a product of capital, already implies all circula¬
tion relations, i.e., a definite social process through which the
products must pass and in which they assume definite social
characteristics; it likewise implies definite relations of the pro¬
duction agents, by which the value-expansien of their product
and its reconversion, either into means of subsistence or into
means of production, are determined. But even apart from this,
the entire determination of value and the regulation of the total
production by value results from the above two characteristics of
the product as a commodity, or of the commodity as a capital¬
istically produced commodity. In this entirely specific form of
value, labour prevails on the one hand solely as social labour;
on the other hand, the distribution of this social labour and the
mutual supplementing and interchanging of its products, the
subordination under, and introduction into, the social mecha¬
nism, are left to the accidental and mutually nullifying motives
of individual capitalists. Since these latter confront one another
only as commodity-owners, and everyone seeks to sell his com¬
modity as dearly as possible (apparently even guided in the
regulation of production itself solely by his own free will), the
inner law enforces itself only through their competition, their
mutual pressure upon each other, whereby the deviations are
mutually cancelled. Only as an inner law, vis-a-vis the individual
agents, as a blind law of Nature, does the law of value exert its
influence here and maintain the social equilibrium of production
amidst its accidental fluctuations.

Furthermore, already implicit in the commodity, and even more
so in the commodity as a product of capital, is the materialisation
of the social features of production and the personification of the
material foundations of production, which characterise the entire
capitalist mode of production.

The second distinctive feature of the capitalist mode of produc¬
tion is the production of surplus-value as the direct aim and
determining motive of production. Capital produces essentially capi¬
tal, and does so only to the extent that it produces surplus-value

DISTRIBUTION RELATIONS AND PRODUCTION RELATIONS 881

We have seen in our discussion of relative surplus-value, and fur¬
ther in considering the transformation of surplus-value into profit,
how a mode of production peculiar to the capitalist period is
founded hereon — a special form of development of the social
productive powers of labour, but confronting the labourer as
powers of capital rendered independent, and standing in direct
opposition therefore to the labourer’s own development. Pro¬
duction for value and surplus-value implies, as has been shown
in the course of our analysis, the constantly operating tendency
to reduce the labour-time necessary for the production of a com¬
modity, i.e., its value, below the actually prevailing social aver¬
age. The pressure to reduce cost-price to its minimum becomes
the strongest lever for raising the social productiveness of labour,
which, however, appears here only as a continual increase in the
productiveness of capital.

The authority assumed by the capitalist as the personification
of capital in the direct process of production, the social function
performed by him in his capacity as manager and ruler of pro¬
duction, is essentially different from the authority exercised on
the basis of production by means of slaves, serfs, etc.

Whereas, on the basis of capitalist production, the mass of direct
producers is confronted by the social character of their production
in the form of strictly regulating authority and a social mechanism
of the labour-process organised as a complete hierarchy— this
authority reaching its bearers, however, only as the personification
of the conditions of labour in contrast to labour, and not as politi¬
cal or theocratic rulers as under earlier modes of production —
among the bearers of this authority, the capitalists themselves,
who confront one another only as commodity-owners, there reigns
complete anarchy within which the social interrelations of
production assert themselves only as an overwhelming natural law
in relation to individual free will.

Only because labour pre-exists in the form of wage-labour, and
the means of production in the form of capital — i.e., solely because
of this specific social form of these essential production factors —
does a part of the value (product) appear as surplus-value and this
surplus-value as profit (rent), as the gain of the capitalist, as addi¬
tional available wealth belonging to him. But only because this
surplus-value thus appears as his profit do the additional means
of production, which are intended for the expansion of reproduc¬
tion, and which constitute a part of this profit, present themselves
as new additional capital, and the expansion of the process of
reproduction in general as a process of capitalist accumulation.

882

REVENUES AND THEIR SOURCES

Although the form of labour as wage-labour is decisive for the
form of the entire process and the specific mode of production it¬
self, it is not wage-labour which determines value. In the determi¬
nation of value, it is a questioh of social labour-time in general,
the quantity of labour which soeiety generally has at its disposal,
and whose relative absorption by the various products determines,
as it were, their respective social importance. The definite form
in which the social labour-time prevails as decisive in the determi¬
nation of the value of commodities is of course connected with
the form of labour as wage-labour and with the corresponding
form of the means of production as capital, in so far as solely
on this basis does commodity-production become the general
form of production.

Let us moreover consider the so-called distribution relations
themselves. The wage presupposes wage-labour, and profit — cap¬
ital. These definite forms of distribution thus presuppose definite
social characteristics of production conditions, and definite social
relations of production agents. The specific distribution relations
are thus merely the expression of the specific historical production
relations.

And now let us consider profit. This specific form of surplus-val¬
ue is the precondition for the fact that the new creation of means
of production takes place in the form of capitalist production;
thus, a relation dominating reproduction, although it seems to the
individual capitalist as if he could in reality consume his entire
profit as revenue. However, he thereby meets barriers even in the
form of insurance and reserve funds laws of competition, etc.,
which hamper him and prove to him in practice that profit is not a
mere distribution category of the individually consumable prod¬
uct. The entire process of capitalist production is furthermore
regulated by the prices of the products. But the regulating prices
of production are themselves in turn regulated by the equalisa¬
tion of the rate of profit and its corresponding distribution of
capital among the various social spheres of production. Profit,
then, appears here as the main factor, not of the distribution of
products, but of their production itself, as a factor in the dis¬
tribution of capitals and labour itself among the various spheres
of production. The division of profit into profit of enterprise
and interest appears as the distribution of the same revenue.
But it arises, to begin with, from the development of capital
as a self-expanding value, a creator of surplus-value, i.e., from
this specific social form of the prevailing process of production.
It evolves credit and credit institutions out of itself, and thereby

DISTRIBUTION RELATIONS AND PRODUCTION RELATIONS

883

the form of production. As interest, etc., the ostensible distri¬
bution forms enter into the price as determining production
factors.

Ground-rent might seem to be a mere form of distribution, be¬
cause landed property as such does not perform any, or at least any
normal, function in the process of production itself. But the cir¬
cumstance that 1) rent is limited to the excess above the average
profit, and that 2) the landlord is reduced from the, manager and
master of the process of production and of the entire process of
social life to the position of mere lessor of land, usurer in land
and mere collector of rent, is a specific historical result of the
capitalist mode of production. The fact that the earth received
the form of landed property is a historical precondition for this.
The fact that landed property assumes forms which permit the
capitalist mode of operation in agriculture is a product of the
specific character of this mode of production. The income of the
landlord may be called rent, even under other forms of society.
But it differs essentially from rent as it appears in this mode of
production.

The so-called distribution relations, then, correspond to and
arise from historically determined specific social forms of the
process of production and mutual relations entered into by men
in the reproduction process of human life. The historical character
of these distribution relations is the historical character of pro¬
duction relations, of which they express merely one aspect. Cap¬
italist distribution differs from those forms of distribution which
arise from other modes of production, and every form of distri¬
bution disappears with the specific form of production from which
it is descended and to which it corresponds.

The view which regards only distribution relations as histor¬
ical, but not production relations, is, on the one hand, solely the
view of the initial, but still handicapped, criticism of bourgeois
economy. On the other hand, it rests on the confusion and iden¬
tification of the process of social production with the simple
labour-process, such as might even be performed by an abnor¬
mally isolated human being without any social assistance. To
the extent that the labour-process is solely a process between
man and Nature, its simple elements remain common to all so¬
cial forms of development. But each specific historical form of
this process further develops its material foundations and social
forms. Whenever a certain stage of maturity has been reached,
the specific historical form is discarded and makes way for a
higher one. The moment of arrival of such a crisis is disclosed

884

REVENUES AND THEIR SOURCES

by the depth and breadth attained by the contradictions and
antagonisms between the distribution relations, and thus the
specific historical form of their corresponding production rela¬
tions, on the one hand, and the productive forces, the production
powers and the development of their agencies, on the other hand.
A conflict then ensues between the material development of produc¬
tion and its social form.67

*’ See the work on Competition and Co-operation (1832?).

CHAPTER LI I
CLASSES

The owners merely oflabour-power, owners of capital, and land-
owners, whose respective sources of income are wages, profit and
ground-rent, in other words, wage-labourers, capitalists and land-
owners, constitute then three big classes of modern society based
upon the capitalist mode of production.

In England, modem society is indisputably most highly and
classically developed in economic structure. Nevertheless, even
here the stratification of classes does not appear in its pure form.
Middle and intermediate strata even here obliterate lines of de¬
marcation everywhere (although incomparably less in rural dis¬
tricts than in the cities). However, this is immaterial for our
analysis. We have seen that the continual tendency and law of
development of the capitalist mode of production is more and
more to divorce the means of production from labour, and more
and more to concentrate the scattered means of production into large
groups, thereby transforming labour into wage-labour and the
means of production into capital. And to this tendency, on the
other hand, corresponds the independent separation of landed
property from capital and labour,58 or the transformation of all
landed property into the form of landed property corresponding
to the capitalist mode of production.

68 F. List remarks correctly: “The prevalence of a self-sufficient economy
on large estates demonstrates solely tne lack of civilisation, means of com¬
munication, domestic trades and wealthy cities. It is to be encountered,
therefore, throughout Russia, Poland, Hungary and Mecklenburg. For¬
merly, it was also prevalent in England; with the advance of trades and
commerce, however, this was replaced by the breaking up into middle
estates and the leasing of land.” ( Die Ackerverfassung, die Zwergwirtschaft
und die Auswanderung, 1842, p. 10.)

29—2494

886

REVENUES AND THEIR SOURCES

The first question to be answered is this: What constitutes a
class? — and the reply to this follows naturally from the reply to
another question, namely: What makes wage-labourers, capital¬
ists and landlords constitute the three great social classes?

At first glance — the identity of revenues and sources of revenue.
There are three great social groups whose members, the individuals
forming them, live on wages, profit and ground-rent respectively,
on the realisation of their labour-power, their capital, and their
landed property.

However, from this standpoint, physicians and officials, e.g.,
would also constitute two classes, for they belong to two distinct
social groups, the members of each of these groups receiving
their revenue from one and the same source. The same would also
be true of the infinite fragmentation of interest and rank into
which the division of -social labour splits labourers as well as
capitalists and landlords — the latter, e.g., into owners of vine¬
yards, farm owners, owners of forests, mine owners and owners
of fisheries.

[Here the manuscript breaks off.]

F. ENGELS

SUPPLEMENT
TO CAPITAL ,
VOLUME THREE

The third book of Capital is receiving many and various inter¬
pretations ever since it has been subject to public judgement.
It was not to be otherwise expected. In publishing it, what I
was chiefly concerned with was to produce as authentic a text
as possible, to demonstrate the new results obtained by Marx
in Marx’s own words as far as possible, to intervene myself only
where absolutely unavoidable, and even then to leave the reader
in no doubt as to who was talking to him. This has been depre¬
cated. It has been said that I should have converted the material
available to me into a systematically written book, en faire un
livre, as the French say; in other words, sacrifice the authenticity
of the text to the reader's convenience. But this was not how I
conceived my task. I lacked all justification for such a revision,
a man like Marx has the right to be heard himself, to pass on his
scientific discoveries to posterity in the full genuineness of his
own presentation. Moreover, I had no desire thus to infringe—
as it must seem to me — upon the legacy of so pre-eminent a man;
it would have meant to me a breach of faith. And third, it would
have been quite useless. For the people who cannot or do not
want to read, who, even in Volume I, took more trouble to un¬
derstand it wrongly than was necessary to understand it cor¬
rectly — for such people it is altogether useless to put oneself out
in any way. But for those who are interested in a real understand¬
ing, the original text itself was precisely the most important
thing; for them my recasting would have had at most the value
of a commentary, and, what is more, a commentary on some¬
thing unpublished and inaccessible. The original text would have
had to be referred to at the first controversy, and at the second
and third its publication in extenso would have become quite
unavoidable.

890 _ SUPPLEMENT TO CAPITAL, VOLUME THREE

Such controversies are a matter of course in a work that contains
so much that is new, and in a hastily sketched and partly in-
complete first draft to boot. And here my intervention, of course,
can be of use: to eliminate difficulties in understanding, to bring
more to the fore important aspects whose significance is not
strikingly enough evident in the text, and to make some impor-
tant additions to the text written in 1865 to fit the state of affairs
in 1895. Indeed, there are already two points which seem to me
to require a brief discussion.

LAW OF VALUE AND RATE OF PROFIT

891

LAW OF VALUE AND RATE OF PROFIT

It was to be expected that the solution of the apparent con¬
tradiction between these two factors would lead to debates just
as much after the publication of Marx’s text as before it. Some
were prepared for a complete miracle and find themselves disap¬
pointed because they see a simple, rational, prosaically-sober
solution of the contradiction instead of the hocus-pocus they
had expected. Most joyfully disappointed of course is the well-
known, illustrious Loria. He has at last found the Archimedian
fulcrum from which even a gnome of his calibre can lift the sol¬
idly built gigantic Marxian structure into the air and explode it.
What! he declaims indignantly. Is that supposed to be a solu¬
tion? That is pure mystification! When the economists speak
of value, they mean value that is actually established in exchange.
“No economist with any trace of sense has ever concerned himself
or will ever want to concern himself with a value which commod¬
ities do not sell for and never can sell for ( n'e possono vendersi
mai).... In asserting that the value for which commodities never
sell is proportional to the labour they contain, what does Marx
do except repeat in an inverted form the thesis of the orthodox
economists, that the value for which commodities sell is not
proportional to the labour expended on them?... Matters are not
helped by Marx’s saying that despite the divergency of individ¬
ual prices from individual values the total price of all commod¬
ities always coincides with their total value, or the amount of
labour contained in the totality of the commodities. For inasmuch
as value is nothing more than the exchange ratio between one
commodity and another, the very concept of a total value is an
absurdity, nonsense ... a contradictio in adjecto....” At the very
beginning of the book, he argues, Marx says that exchange can
equate two commodities only by virtue of a similar and equally
large element contained in them, namely, the equal amount of
labour. And now he most solemnly repudiates himself by asserting
that commodities exchange with one another in a totally differ¬
ent ratio than that of the amount of labour contained in them.
“Was there ever such an utter reductio ad absurdum, such
complete theoretical bankruptcy? Was ever scientific suicide
committed with greater pomp and more solemnity!” (Nuova
Antologia, Feb. 1, 1895, pp. 477-78, 479.)

892

SUPPLEMENT TO CAPITAL, VOLUME THREE

We see our Loria is more than happy. Wasn’t he right in treat¬
ing Marx as one of his own, as an ordinary charlatan? There you
see it — Marx sneers at his public just like Loria; he lives on
mystifications just like the most insignificant Italian professor
of economics. But, whereas Dulcamara* can afford that because
he knows his trade, the clumsy Northerner, Marx, commits noth¬
ing but ineptitudes, writes nonsense and absurdities, so that there
is finally nothing left for him but solemn suicide.

Let us save for later the statement that commodities have never
been sold, nor can ever be sold, at the values determined by la¬
bour. Let us deal here merely with Mr. Loria ’s assurance that
“value is nothing more than the exchange ratio between one com¬
modity and another, ” and that therefore “the very concept of
a total value of commodities is an absurdity, nonsense ... a con-
tradictio in adjecto." The ratio in which two commodities are
exchanged for each other, their value, is therefore something
purely accidental, stuck on to the commodities from the outside,
which can be one thing today and something else tomorrow.
Whether a metric hundredweight of wheat is exchanged for a
gramme or a kilogramme of gold does not in the least depend
upon conditions inherent in that wheat or gold, but upon circum¬
stances totally foreign to both. For otherwise these conditions
would also have to assert themselves in the exchange, dominate
the latter on the whole, and also have an independent existence
apart from exchange, so that one could speak of a total value
of commodities. That is nonsense, says the illustrious Loria.
No matter in what ratio two commodities may be exchanged for
each other, that is their value — and that’s all there is to it. Hence
value is identical with price, and every commodity has as many
values as the prices it can get. And price is determined by supply
and demand; and anyone asking any more questions is a fool to
expect an answer.

But there is a little hitch to the matter. In the normal state,
supply and demand balance. Therefore, let us divide all the com¬
modities in the world into two halves, the supply group and the
equally large demand group. Let us assume that each represents
a price of 1,000,000 million marks, francs, pounds sterling, or
what you will. According to elementary arithmetic that makes
a price or value of 2,000,000 million. Nonsense, absurd, says
Mr. Loria. The two groups together may represent a price of
2,000,000 million. But it is otherwise with value. If we say

* Charlatan in L’Elisir d'Amore, comic opera by Donizetti. — Ed.

LAW OF VALLE AND RATE OF PROFIT

893

price: 1,000 + 1,000 = 2,000. But if we say value: 1,000+1,000 = 0.
At least in this case, where the totality of commodities is involved
For here the commodities of each of the two groups are worth
1,000,000 million only because each of the two can and will give
this sum for the commodities of the other. But if we unite the
totality of the commodities of both groups in the hands of a third
person, the Erst has no value in his hand any longer, nor the
second, and the third certainly not— in the end no one has any¬
thing. And again we marvel at the superiority with which our
southern Cagliostro has manhandled the concept of value in such
a fashion that not the slightest trace of it has been left. This is
the acme of vulgar economics!1

In Braun’s Archiv fiir soziale Gesetzgebung, Vol. VII, No. 4,
Werner Sombart gives an outline of the Marxian system which,
taken all in all, is excellent. It is the Erst time that a German

1 Somewhat later, the same gentleman “well-known through his fame”
[Heinrich Heine, Ritter Olaf.—Ed.\ (to use Heine's phrase) also felt
himself compelled to reply to my preface to Volume 111— after it was pub¬
lished in Italian in the first number of Rassegna in 1895. The reply is printed
in the Riforma Sociale of February 25, 1895. After having lavished upon
me the inevitable (and therefore doubly repulsive) adulation, he states that
he never thought of filching for himself Marx’s credit for the materialist
conception of history. He acknowledged it as early as 1885— to wit, quite
incidentally in a magazine article. But in return ho passes over it in silence
all the more stubbornly precisely where it is due, that is, in his book on the
subject, where Marx is mentioned for the first time on page 129, and then
merely in connection with small landed property in France. And now he
bravely declares that Marx is not at all the originator of this theory; if Aris¬
totle had not already suggested it, Harrington undoubtedly proclaimed
it as early as 1656, and it had been developed by a Pleiad of historians, poli¬
ticians, jurists and economists long before Marx. All of which is to be read
in the French edition of Loria's book. In short, the perfect plagiarist. After
I have made it impossible for him to brag any more with plagiarisms from
Marx, he boldly maintains that Marx adorns himself with borrowed plumes
just as he himself does. From my other attacks, Loria takes up the one that,
according to him, Marx never planned to write a second or indeed a third
volume of Capital. “And now Engels replies triumphantly by throwing the
second and third volumes at me ... excellent! And 1 am so pleased with
these volumes, to which I owe so much intellectual enjoyment, that never
was a victory so dear to me as today this defeat is— if it really is a defeat.
But is it actually? Is it really true that Marx wrote, with the intention of
publication, this mixture of disconnected notes that Engels, with pious
friendship, has compiled? Is it really permissible to assume that Marx ...
confided the coronation of his work and his system to these pages? Is it
indeed certain that Marx would have published that chapter on the average
rate of profit, in which the solution, promised for so many years, is reduced
to the most dismal mystification, to the most vulgar playing with phrases?
It is at least permissible to doubt it.... That proves, it seems to me, that
Marx, after publishing his magnificent ( splendido ) book, did not intend to

894

SUPPLEMENT TO CAPITAL, VOLUME THREE

university professor succeeds on the whole in seeing in Marx’s
writings what Marx really says, stating that the criticism of the
Marxian system cannot consist of a refutation — “let the political
careerist deal with that”— but merely in a further development.
Sombart, too, deals with our subject, as is to be expected. He
investigates the importance of value in the Marxian system,
and arrives at the following results: Value is not manifest in
the exchange relation of capitalistically produced commodities;
it does not live in the consciousness of the agents of capitalist
production; it is not an empirical, but a mental, a logical fact;
the concept of value in its material definiteness in Marx is noth¬
ing but the economic expression for the fact of the social produc¬
tive power of labour as the basis of economic existence; in the
final analysis the law of value dominates economic processes in
a capitalist economic system, and for this economic system quite
generally has the following content: the value of commodities
is the specific and historical form in which the productive power
of labour, in the last analysis dominating all economic proc¬
esses, asserts itself as a determining factor. So says Sombart; it
cannot be said that this conception of the significance of the law
of value for the capitalist form of production is wrong. But it
does seem to me to be too broad, and susceptible of a narrower,
more precise formulation; in my opinion it by no means exhausts
the entire significance of the law of value for the economic stages
of society’s development dominated by this law.

There is a likewise excellent article by Conrad Schmidt on the
third volume of Capital in Braun’s Sozialpolitisches Zentral-
blatt, February 25, 1895, No. 22. Especially to be emphasised here
is the proof of how the Marxian derivation of average profit from
surplus-value for the first time gives an answer to the question
not even posed by economics up to now: how the magnitude of
this average rate of profit is determined, and how it comes about

provide it with a successor, or else wanted to leave the completion of the
gigantic work to his heirs, outside his own responsibility. ”

So it is written on p. 267. Heine could not speak any more contemptuous¬
ly of his philistine German public than in the words: “The author finally
gets used to his public as if it were a reasonable being. ” What must the il¬
lustrious Loria think his public is?

In conclusion, another load of praise comes pouring down on my unlucky
self. In this our Sganarelle puts himself on a par with Balaam, who came
to curse but whose lips bubbled forth “words of blessing and love” against
his will. For the good Balaam was distinguished by the fact that he rode
upoH an ass that was more intelligent than its master. This time Balaam
evidently left his ass at home.

LAW OF VALUE AND RATE OF PROFIT

895

that it is, say, 10 or 15 per cent and not 50 or 100 per cent. Since
we know that the surplus-value first appropriated by the in¬
dustrial capitalist is the sole and exclusive source from which
profit and rent flow, this question solves itself. This passage
of Schmidt’s article might be directly written for economists
a la Loria, if it were not labour in vain to open the eyes of those
who do not want to see.

Schmidt, too, has his formal misgivings regarding the law of
value. He calls it a scientific hypothesis, set up to explain the actu¬
al exchange process, which proves to be the necessary theoretical
starting-point, illuminating and indispensable, even in respect of
the phenomena of competitive prices which seem in absolute con¬
tradiction to it. According to him, without the law of value all
theoretical insight into the economic machinery of capitalist
reality ceases. And in a private letter that he permits me to quote,
Schmidt declares the law of value within the capitalist form of
production to be a pure, although theoretically necessary, fiction.
This view, however, is quite incorrect in my opinion. The law
of value has a far greater and more definite significance for cap¬
italist production than that of a mere hypothesis, not to mention
a fiction, even though a necessary one.

Sombart, as well as Schmidt— I mention the illustrious Loria
merely as an amusing vulgar-economic foil— does not make suffi¬
cient allowance for the fact that we are dealing here not only with
a purely logical process, but with a historical process and its
explanatory reflection in thought, the logical pursuance of its
inner connections.

The decisive passage is to be found in Marx, Buch III, I,
S. 154*:

“The whole difficulty arises from the fact that commodities are
not exchanged simply as commodities, but as products of capitals,
which claim participation in the total amount of surplus-value,
proportional to their magnitude, or equal if they are of equal
magnitude. ”

To illustrate this difference, it is supposed that the workers are
in possession of their means of production, that they work on the
average for equally long periods of time and with equal intensity,
and exchange their commodities with one another directly. Then,
in one day, two workers would have added by their labour an equal
amount of new value to their products, but the product of each
would have different value, depending on the labour already em-

* Present edition: p. 175. — Ed.

896

SUPPLEMENT TO CAPITAL, VOLUME THREE

bodied in the means of production. This latter part of the value
would represent the constant capital of capitalist economy, while
that part of the newly added value employed for the worker's
means of subsistence would represent the variable capital, and
the portion of the new value still remaining would represent the
surplus-value, which in this case would belong to the worker.
Thus, after deducting the amount to replace the “constant” part
of value only advanced by them, both workers would get equal
values; but the ratio of the part representing surplus-value to
the value of the means of production— which would correspond
to the capitalist rate of profit— would be different in each case.
But since each of them gets the value of the means of production
replaced through the exchange, this would be a wholly immaterial
circumstance.

“The exchange of commodities at their values, or approximately
at their values, thus requires a much lower stage than their ex¬
change at their prices of production, which requires a definite
level of capitalist development.... Apart from the domination
of prices and price movement by the law of value, it is quite
appropriate to regard the values of commodities as not only
theoretically but also historically prius to the prices of production.
This applies to conditions in which the labourer owns his means
of production, and this is the condition of the landowning farmer
living off his own labour and the craftsman, in the ancient as
well as in the modern world. This agrees also with the view we
expressed previously, that the evolution of products into com¬
modities arises through exchange between different communities,
not between the members of the same community. It holds not
only for this primitive condition, but also for subsequent con¬
ditions, based on slavery and serfdom, and for the guild organi¬
sation of handicrafts, so long as the means of production involved
in each branch of production can be transferred from one sphere
to another only with difficulty and therefore the various spheres
of production are related to one another, within certain limits,
as foreign countries or communist communities.” (Marx, Buch III,
I, S. 156 ft.*)

Had Marx had an opportunity to go over the third volume once
more, he would doubtless have extended this passage consider¬
ably. As it stands it gives only a sketchy outline of what is to be
said on the point in question. Let us therefore examine it some¬
what closer.

Present edition: p. 177. — Ed.

LAW OF VALUE AND RATE OF PROFIT

897

We all know that at the beginnings of society products are con¬
sumed by the producers themselves, and that these producers are
spontaneously organised in more or less communistic communi¬
ties; that the exchange of the surplus of these products with
strangers, which ushers in the conversion of products into com¬
modities, is of a later date; that it takes place at first only between
individual communities of different tribes, but later also prevails
within the community, and contributes considerably to the latter’s
dissolution into bigger or smaller family groups. But even after
this dissolution, the exchanging family heads remain working
peasants, who produce almost all they require with the aid of their
families on their own farmsteads, and get only a slight portion of
the required necessities from the outside in exchange for surplus-
products of their own. The family is engaged not only in agri¬
culture and livestock-raising; it also works their products up
into finished articles of consumption; now and then it even does
its own milling with the hand-mill; it bakes bread, spins, dyes,
weaves flax and wool, tans leather; builds and repairs wooden
buildings, makes tools and utensils, and not infrequently does
joinery and blacksmithing; so that the family or family group is
in the main self-sufficient.

The little that such a family had to obtain by barter or buy from
outsiders, even up to the beginning of the 19th century in Ger¬
many, consisted principally of the objects of handicraft production,
that is, such things the nature of whose manufacture was by no
means unknown to the peasant, and which he did not produce
himself only because he lacked the raw material or because the
purchased article was much better or very much cheaper. Hence
the peasant of the Middle Ages knew fairly accurately the labour¬
time required for the manufacture of the articles obtained by
him in barter. The smith and the cart-wright of the village worked
under his eyes; likewise the tailor and shoemaker, who in my
youth still paid their visits to our Rhine peasants, one after
another, turning the home-made materials into shoes and cloth¬
ing. The peasants, as well as the people from whom they bought,
were themselves workers; the exchanged articles were each one’s
own products. What had they expended in making these prod¬
ucts? Labour and labour alone: to replace tools, to produce the
raw material, and to process it they spent nothing but their own
labour-power; how then could they exchange these products of
theirs for those of other labouring producers otherwise than in
the ratio of the labour expended on them? Not only was the
labour-time spent on these products the only suitable measure for

898

SUPPLEMENT TO CAPITAL, VOLUME THREE

the quantitative determination of the values to be exchanged:
no other was at all possible. Or is it believed that the peasant and
the artisan were so stupid as to give up the product of ten hours’
labour of one person for that of a single hour’s labour of another?
No other exchange is possible in the whole period of peasant natur¬
al economy than that in which the exchanged quantities of com¬
modities tend to be measured more and more according to the
amounts of labour embodied in them. From the moment money
penetrates into this mode of economy, the tendency towards adap¬
tation to the law of value (in the Marxian formulation, nota
bene\) grows more pronounced on the one hand, while on the
other it is already interrupted by the interference of usurers’
capital and fleecing by taxation; the periods for which prices,
on the average, approach to within a negligible margin of values
begin to grow longer.

The same holds good for exchange between peasant products and
those of the urban artisans. At the beginning this barter takes
place directly, without the medium of the merchant — on the
cities’ market days, when the peasant sells and makes his pur¬
chases. Here too, not only does the peasant know the artisan’s
working conditions, but the latter knows those of the peasant
as well. For the artisan is himself still a bit of a peasant; ha not
only has a vegetable and fruit garden, but very often also has
a small piece of land, one or two cows, pigs, poultry, etc. People
in the Middle Ages were thus able to check up with considerable
accuracy on each other’s production costs for raw material,
auxiliary material, and labour-time — at least in respect of articles
of daily general use.

But how, in this barter on the basis of quantity of labour,
was the latter to be calculated, even if only indirectly and rela¬
tively, for products requiring longer labour, interrupted at irregu¬
lar intervals, and uncertain in yield — e.g., grain or cattle? And
among people, to boot, who could not calculate? Obviously only
by means of a lengthy process of zigzag approximation, often
feeling the way here and there in the dark, and, as is usual, learn¬
ing only through mistakes. But each one’s necessity for covering
his outlay on the whole always helped to return to the right direc¬
tion; and the small number of kinds of articles in circulation,
as well as the often century-long stable nature of their production,
facilitated the attaining of this goal. And that it by no means
took so long for the relative amount of value of these products
to be fixed fairly closely is already proved by the fact that cattle,
the commodity for which this appears to be most difficult because

LAW OF VALUE AND RATE OF PROFIT

899

of the long time of production of the individual head, became
the first rather generally accepted money-commodity. To ac¬
complish this, the value of cattle, its exchange ratio to a large
number of other commodities, must already have attained a
relatively unusual stabilisation, acknowledged without contra¬
diction in the territories of many tribes. And the people of that
time were certainly clever enough — both the cattle-breeders and
their customers— not to give away the labour-time expended by
them without an equivalent in barter. On the contrary, the closer
people are to the primitive state of commodity-production—
the Russians and Orientals for example — the more time do they
still waste today, in order to squeeze out, through long tenacious
bargaining, the full compensation for their labour-time expended
on a product.

Starting with this determination of value by labour-time, the
whole of commodity-production developed, and with it the multi¬
farious relations in which the various aspects of the law of value
assert themselves, as described in the first part of Volume I of
Capital, that is, in particular, the conditions under which labour
alone is value-creating. These are conditions which assert them¬
selves without entering the consciousness of the participants and
can themselves be abstracted from daily practice only through
laborious theoretical investigation; which act, therefore, like
natural laws, as Marx proved to follow necessarily from the na¬
ture of commodity-production. The most important and most
incisive advance was the transition to metallic money, the con¬
sequence of which, however, was that the determination of value
by labour-time was no longer visible upon the surface of commod¬
ity exchange. From the practical point of view, money became
the decisive measure, of value, all the more as the commodities
entering trade became more varied, the more they came from
distant countries, and the less, therefore, the labour-time neces¬
sary for their production could be checked. Money itself usually
came first from foreign parts; even when precious metals were
obtained within the country, the peasant and artisan were partly
unable to estimate approximately the labour employed therein,
and partly their own consciousness of the value-measuring
property of labour had been fairly well dimmed by the habit
of reckoning with money; in the popular mind money began to
represent absolute value.

In a word: the Marxian law of value holds generally, as far as
economic laws are valid at all, for the whole period of simple com¬
modity-production, that is, up to the time when the latter suffers

900

SUPPLEMENT TO CAPITAL, VOLUME THREE

a modification through the appearance of the capitalist form of
production. Up to that time prices gravitate towards the values
fixed according to the Marxian law and oscillate around those val¬
ues, so that the more fully simple commodity-production devel¬
ops, the more the average prices over long periods uninterrupted
by external violent disturbances coincide with values within a
negligible margin. Thus the Marxian law of value has general eco¬
nomic validity for a period lasting from the beginning of exchange,
which transforms products into commodities, down to the 15th
century of the present era. But the exchange of commodities dates
from a time before all written history, which in Egypt goes back to
at least 2,500 B. C., and perhaps 5,000 B. C., and in Babylon to
4,000 B. C., perhaps 6,000 B. C.; thus the law of value has pre¬
vailed during a period of from five to seven thousand years. And
now let us admire the thoroughness of Mr. Loria, who calls the
value generally and directly valid during this period, a value
at which commodities are never sold nor can ever be sold, and
with which no economist having a spark of common sense would
ever occupy himself!

We have not spoken of the merchant up to now We could save
the consideration of his intervention for now, when we pass to the
transformation of simple into capitalist commodity-production.
The merchant was the revolutionary element in this society where
everything else was stable-stable, as it were, through inherit¬
ance; where the peasant obtained not only his hide of land but
his status as a freehold proprietor, as a free or enthralled quit-rent
peasant or serf, and the urban artisan his trade and his guild priv¬
ileges by inheritance and almost inalienably, and each of them,
in addition, his customers, his market, as well as his skill, trained
from childhood for the inherited craft. Into this" world then
entered the merchant with whom its revolution was to start. But
not as a conscious revolutionary; on the contrary, as flesh of jts
flesh, bone of its bone. The merchant of the Middle Ages was by
no means an individualist; he was essentially an associate like
all his contemporaries. The mark association, grown out of primi¬
tive communism, prevailed in the country-side. Each peasant
originally had an equal hide, with equal pieces of land of each
quality, and a corresponding, equal share in the rights of the
mark. After the mark had become a closed association and
no new hides were allocated any longer, sub-division of the
hides occurred through inheritance, etc., with corresponding sub¬
divisions of the common rights in the mark; but the full hide
remained the unit, so that there were half, quarter and eighth-

LAW OF VALUE AND RATE OF PROFIT

901

hides with half, quarter and eighth-rights in the mark. All later
productive associations, particularly the guilds in the cities,
whose statutes were nothing but the application of the mark
constitution to a craft privilege instead of to a restricted area of
land, followed the pattern of the mark association. The central
point of the whole organisation was the equal participation of every
member in the privileges and produce assured to the guild, as is
strikingly expressed in the 1527 license of the Elberfeld and
Barmen yarn trade. (Thun: Industrie am Niederrhein, Vol. II,
p. 164 ff.) The same holds true of the mine guilds, where each
share participated equally and was also divisible, together with
its rights and obligations, like the hide of the mark member.
And the same holds good in no less degree of the merchant com¬
panies, which initiated overseas trade. The Venetians and the
Genoese in the harbour of Alexandria or Constantinople, each
“nation” in its own fondaco— dwelling, inn, warehouse, exhibi¬
tion and salesrooms, together with central offices— formed com¬
plete trade associations; they were closed to competitors and
customers; they sold at prices fixed among themselves; their
commodities had a definite quality guaranteed by public inspec¬
tion and often by a stamp; they deliberated in common on the
prices to be paid by the natives for their products, etc. Nor did
the Hanseatic merchants act otherwise on the German Bridge
(Tydske Bryggen) in Bergen, Norway; the same held true of
their Dutch and English competitors. Woe to the man who sold
under the price or bought above the price! The boycott that struck
him meant at that time inevitable ruin, not counting the direct
penalties imposed by the association upon the guilty. And even
closer associations were founded for definite purposes, such a9
the Maona of Genoa in the 14th and 15th centuries, for years
the ruler of the alum mines of Phocaea in Asia Minor, as well
as of the Island of Chios; furthermore the great Ravensberg Trad¬
ing Company, which dealt with Italy and Spain since the end
of the 14th century, founding branches in those countries; the
German company of the Augsburgers: Fugger, Welser, Vohlin,
Hochstetter, etc.; that of the Nurnbergers: Hirschvogel and oth¬
ers, which participated with a capital of 66,000 ducats and three
ships in the 1505-06 Portuguese expedition to India, making
a net profit of 150 per cent, according to others, 175 per cent
(Heyd: Levantehandel, Vol. II, p. 524); and a large number of other
companies, “Monopolia, ” over which Luther waxes so indignant.

Here for the first time we meet with a profit and a rate of profit.
The merchant’s efforts are deliberately and consciously aimed at

902

SUPPLEMENT TO CAPITAL, VOLUME THREE

making this rate of profit equal for all participants. The Vene¬
tians in the Levant, and the Hanseatics in the North, each paid
the same prices for his commodities as his neighbour; his trans¬
port charges were the same, he got the same prices for his goods
and bought return cargo for the same prices as every other mer¬
chant of his “nation. ” Thus the rate of profit was equal for all.
In the big trading companies the allocation of profit pro rata of
the paid-in capital share is as much a matter of course as the
participation in mark rights pro rata of the entitled hide share,
or as the mining profit pro rata of the mining share. The equal
rate of profit, which in its fully developed form is one of the final
results of capitalist production, thus manifests itself here in its
simplest form as one of the points from which capital started
historically, as a direct offshoot in fact of the mark association,
which in turn is a direct offshoot of primitive communism.

This original rate of profit was necessarily very high. The busi¬
ness was very risky, not only because of widespread piracy; the
competing nations also permitted themselves all sorts of acts of
violence when the opportunity arose; finally, sales and marketing
conditions were based upon licenses granted by foreign princes,
which were broken or revoked often enough. Hence, the profit
had to include a high insurance premium. Then turnover was
slow, the handling of transactions protracted, and in the best
periods, which, admittedly, were seldom of long duration, the
business was a monopoly trade with monopoly profit. The very
high interest rates prevailing at the time, which always had to
be lower on the whole than the percentage of usual commercial
profit, also prove that the rate of profit was on the average very
high.

But this high rate of profit, equal for all participants and
obtained through joint labour of the community, held only locally
within the associations, that is, in this case the “nation.” Vene¬
tians, Genoese, Hanseatics, and Dutchmen each had a special
rate of profit, and at the beginning more or less for each indiv¬
idual market area as well. Equalisation of these different com¬
pany profit rates took place in the opposite way through compe¬
tition. First, the profit rates of the different markets for one and
the same nation. If Alexandria offered more profit for Venetian
goods than Cyprus, Constantinople or Trebizond, the Venetians
would start more capital moving towards Alexandria, with¬
drawing it from trade with the other markets. Then the gradual
equalisation of profit rates among the different nations, exporting
the same or similar goods to the same markets, had to follow,

LAW OP VALUE AND RATE OP PROFIT

no:i

and some of these nations were very often squeezed to the wall
and disappeared from the scene. But this process was being con¬
tinually interrupted by political events, just as all Levantine
trade collapsed owing to the Mongolian and Turkish invasions;
the great geographic-commercial discoveries after 1492 only ac¬
celerated this decline and then made it final.

The sudden expansion of the market area that followed and the
revolution in communications connected with it, introduced no
essential change at first in the nature of trade operations. At the
beginning, co-operative companies also dominated trade with India
and America. But in the first place, bigger nations stood behind
these companies. In trade with America, the whole of great united
Spain took the place of the Catalonians trading with the Levant;
alongside it two great countries like England and France; and
even Holland and Portugal, the smallest, were still at least as
large and strong as Venice, the greatest and strongest trading
nation of the preceding period. This gave the travelling merchant,
the merchant adventurer of the 16th and 17th centuries, a backing
that made the company, which protected its companions with
arms also, more and more superfluous, and its expenses an outright
burden. Moreover, the wealth in a single hand grew consider¬
ably faster, so that single merchants soon could invest as large
sums in an enterprise as formerly an entire company. The trading
companies, wherever still existent, were usually converted into
armed corporations, which conquered and monopolistically ex¬
ploited whole newly discovered countries under the protection
and the sovereignty of the mother country. But the more colonies
were founded in the new areas, largely by the state, the more
did company trade recede before that of the individual merchant,
and the equalisation of the profit rate became therewith more
and more a matter of competition exclusively.

Up to now we have become acquainted with a rate of profit only
for merchant capital. For only merchant and usurers’ capital had
existed up to that time; industrial capital was yet to be developed.
Production was still predominantly in the hands of workers own¬
ing their own means of production, whose work therefore yielded
no surplus-value to any capital. If they had to surrender a part of
the product to third parties without compensation, it was in the
form of tribute to feudal lords. Merchant capital, therefore, could
only make its profit, at least at the beginning, out of the foreign
buyers of domestic products, or the domestic buyers of foreign
products; only toward the end of this period— for Italy, that is,
with the decline of Levantine trade — were foreign competition

904

SUPPLEMENT TO CAPITAL, VOLUME THREE

and the difficulty of marketing able to compel the handicraft
producers of export commodities to sell the commodity under
its value to the exporting merchant. And thus we find here that
commodities are sold at their values, on the average, in the do¬
mestic retail trade of individual producers with one another,
but, for the reasons given, not in international trade as a rule.
Quite the opposite of the present-day world, where the produc¬
tion prices hold good in international and wholesale trade, while
the formation of prices in urban retail trade is governed by quite
other rates of profit. So that the meat of an ox, for example,
experiences today a greater rise in price on its way from the Lon¬
don wholesaler to the individual London consumer than from
the wholesaler in Chicago, including transport, to the London
wholesaler.

The instrumeht that gradually brought about this revolution in
price formation was industrial capital. Rudiments of the latter
had been formed as early as the Middle Ages, in three fields— ship¬
ping, mining and textiles. Shipping on the scale practised by the
Italian and Hanseatic maritime republics was impossible without
sailors, i.e., wage-labourers (whose wage relationship may have
been concealed under association forms with profit-sharing), or
without oarsmen — wage-labourers or slaves— for the galleys of
that day. The guilds in the ore mines, originally associated work¬
ers, had already been converted in almost every case into stock
companies for exploiting the deposits by means of wage-labourers.
And in the textile industry the merchant had begun to place
the little master-weaver directly in his service, by supplying
him with yarn and having it made into cloth for his account
in return for a fixed wage, in short, by himself changing from
a mere buyer into a so-called contractor.

Here we have the first beginning of the formation of capitalist
surplus-value. We can ignore the mining guilds as closed monopoly
corporations. With regard to the shipowners it is obvious that
their profit had to be at least as high as the customary one in the
country, plus an extra increment for insurance, depreciation of
ships, etc. But how were matters with the textile contractors,
who first brought commodities, directly manufactured for cap¬
italist account, into the market and into competition with the
commodities of the same sort made for handicraft account?

Merchant capital’s rate of profit was at hand to start with. Like¬
wise, it had already been equalised to an approximate average
rate, at least for the locality in question. Now what could induce the
merchant to take on the extra business of fei contractor? Only one

LAW OF VALUE AND RATE OF FROFIT

905

thing: the prospect of greater profit at the same selling price
as the others. And he had this prospect. By taking the little master
into his service, he broke through the traditional bonds of pro¬
duction within which the producer sold his finished product and
nothing else. The merchant capitalist bought the labour-power,
which still owned its production instruments but no longer the
raw material. By thus guaranteeing the weaver regular employ¬
ment, he could depress the weaver’s wage to such a degree that
a part of the labour-time furnished remained unpaid for. The
contractor thus became an appropriator of surplus-value over
and above his commercial profit. Admittedly, he had to employ
additional capital to buy yam, etc., and leave it in the weaver’s
hands until the article for which he formerly had to pay the full
price only upon purchasing it was finished. But, in the first place,
he had already used extra capital in most cases for advances to
the weaver, who as a rule submitted to the new production con¬
ditions only under the pressure of debt. And secondly, apart
from that, the calculation took the following form:

Assume that our merchant operates his export business with a
capital of 30,000 ducats, sequins, pounds sterling or whatever the
case may be. Of that, say, 10,000 are engaged in the purchase of
domestic goods, whereas 20,000 are used in the overseas market. Say
the capital is turned over once in two years. Annual turnover =
= 15,000. Now our merchant wants to become a contractor, to
have cloth woven for his own account. How much additional
capital must he invest? Let us assume that the production time
of the piece of cloth, such as he sells, averages two months, which
is certainly very high. Let us further assume that he has to pay
for everything in cash. Hence he must advance enough capital
to supply his weavers with yam for two months. Since his turn¬
over is 15,000 a year he buys cloth for 2,500 in two months. Let
us say that 2,000 of that represents the value of yam, and 500
weavers’ wages; then our merchant requires an additional capital
of 2,000. We assume that the surplus-value he appropriates from
the weaver by the new method totals only 5 per cent of the value
of the cloth, which constitutes the certainly very modest surplus-

A *)£

value rate of 25 per cent. (2,000c-f 500v-f 125s; 5'=-^- = 25%;

125

P ~ 2 500 ~5%~) ®ur man t^en ma^es au extra profit of 750 on his
annual turnover of 15,000, and has thus got his additional cap¬
ital back in 2*/3 years.

But in order to accelerate his sales and hence his turnover, thus
making the same profit with the same capital in a shorter period

906

SUPPLEMENT TO CAPITAL, VOLUME THREE

of time, and hence a greater profit in the same time, he will do¬
nate a small portion of his surplus-value to the buyer — he will
sell cheaper than his competitors. The latter will also gradually
be converted into contractors, and then the extra profit for all
of them will be reduced to the ordinary profit, or even to a lower
profit on the capital that has been increased for all of them. The
equality of the profit rate is re-established, although possibly
on another level, by a part of the surplus-value made at home
being turned over to the foreign buyers.

The next step in the subjugation of industry by capital takes
place through the introduction of manufacture. This, too, enables
the manufacturer, who is most often his own export trader in the
17th and 18th centuries — generally in Germany down to 1850,
and still today here and there — to produce cheaper than his old-
fashioned competitor, the handicraftsman. The same process is
repeated; the surplus-value appropriated by the manufacturing
capitalist enables him (or the export merchant who shares with
him) to sell cheaper than his competitors, until the general in¬
troduction of the new mode of production, when equalisation
again takes place. The already existing mercantile rate of profit,
even if it is levelled out only locally, remains the Procrustean
bed in which the excessive industrial surplus-value is lopped
off without mercy.

If manufacture sprung ahead by cheapening its products, this is
even more true of modern industry, which forces the production
costs of commodities lower and lower through its repeated revolu¬
tions in production, relentlessly eliminating all former modes of
production. It is large-scale industry, too, that thus finally con¬
quers the domestic market for capital, puts an end to the small-
scale production and natural economy of the self-sufficient peas¬
ant family, eliminates direct exchange between small producers,
and places the entire nation in the service of capital. Likewise,
it equalises the profit rate of the different commercial and in¬
dustrial branches of business into one general rate of profit, and
finally ensures industry the position of power due to it in this
equalisation by eliminating most of the obstacles formerly hinder¬
ing the transfer of capital from one branch to another. Thereby
the conversion of values into production prices is accomplished
for all exchange as a whole. This conversion therefore proceeds
according to objective laws, without the consciousness or the
intent of the participants. Theoretically there is no difficulty
at all in the fact that competition reduces to the general level
profits which exceed the general rate, thus again depriving the

LAW OP VALUE AND RATE OF PROFIT

907

first industrial appropriator of the surplus-value exceeding the
average. All the more so in practice, however, for the spheres
of production with excessive surplus-value, with high variable
and low constant capital, i.e., with low capital composition,
are by their very nature the ones that are last and least completely
subjected to capitalist production, especially agriculture. On the
other hand, the rise of production prices above commodity-values,
which is required to raise the below-average surplus-value, con¬
tained in the products of the spheres of high capital composition,
to the level of the average rate of profit, appears to be extremely
difficult theoretically, but is soonest and most easily effected in
practice, as we have seen. For when commodities of this class are
first produced capitalistically and enter capitalist commerce, they
compete with commodities of the same nature produced by pre¬
capitalist methods and hence dearer. Thus, even if the capitalist
producer renounces a part of the surplus-value, he can still ob¬
tain the rate of profit prevailing in his locality, which originally
had no direct connection with surplus-value because it had arisen
from merchant capital long before there was any capitalist
production at all, and therefore before an industrial rate of profit
was possible.

908

SUPPLEMENT TO CAPITAL, VOLUME THREE

THE STOCK EXCHANGE*

1. The position of the stock exchange in capitalist production in
general is clear from Vol. Ill, Part 5, especially Chapter.** But
since 1865, when the book was written, a change has taken place
which today assigns a considerably increased and constantly grow¬
ing role to the stock exchange, and which, as it develops, tends
to concentrate all production, industrial as well as agricultural,
and all commerce, the means of communication as well as the
functions of exchange, in the hands of stock exchange operators, so
that the stock exchange becomes the most prominent representa¬
tive of capitalist production itself.

2. In 1865 the stock exchange was still a secondary element in
the capitalist system. Government bonds represented the bulk of
exchange securities, and even their sum-total was still relatively
small. Besides, there were joint-stock banks, predominant on the
continent and in America, and just beginning to absorb the aristo¬
cratic private banks in England, but still relatively insignificant
en masse. Railway shares were still comparatively weak compared
to the present time. There were still only few directly productive
establishments in stock company form — and, like the banks,
most of all in the poorer countries: Germany, Austria, America,
etc. The “minister’s eye” was still an unconquered superstition.

At that time, the stock exchange was still a place where the
capitalists took away each other’s accumulated capital, and which
directly concerned the workers only as new proof of the demoral¬
ising general effect of capitalist economy and as confirmation of
the Calvinist doctrine that predestination (alias chance) decides,
even in this life, blessedness and damnation, wealth, i.e., enjoy¬
ment and power, and poverty, i.e., privation and servitude.

3. Now it is otherwise. Since the crisis of 1866 accumulation has
proceeded with ever-increasing rapidity, so that in no industrial
country, least of all in England, could the expansion of production
keep up with that of accumulation, or the accumulation of the
individual capitalist be completely utilised in the enlargement
of his own business; English cotton industry as early as 1845;

• The MS. is entitled by Engels “The Stock Exchange, Supplementary
Notes to Capital, Volume Three."— Ed.

** In the MS., Engels left a blank for the chapter number to be entered.
Chapter XXVII, “The Role of Credit in Capitalist Production,” apparently
was intended. — Ed.

STOCK EXCHANGE

909

the railway swindles. But with this accumulation the number
of rentiers, people who were fed up with the regular tension in
business and therefore wanted merely to amuse themselves or
to follow a mild pursuit as directors or governors of companies,
also rose. And third, in order to facilitate the investment of this
mass floating around as money-capital, new legal forms of limited
liability companies were established wherever that had not yet
been done, and the liability of the shareholder, formerly unlim¬
ited, was also reduced ± [more or less] (joint-stock companies
in Germany, 1890. Subscription 40 per cent!).

4. Thereafter, gradual conversion of industry into stock com¬
panies. One branch after another suffers this fate. First iron, where
giant plants are now necessary (before that, mines, where not
already organised on shares). Then the chemical industry, like¬
wise machinery plants. On the continent, the textile industry;
in England, only in a few areas in Lancashire (Oldham Spinning
Mill, Burnley Weaving Mill, etc., tailor co-operatives, but this
is only a preliminary stage which will again fall into the masters’
hands at the next crisis), breweries (the American ones sold a
few years ago to English capital, then Guinness, Bass, Allsopp).
Then the trusts, which create gigantic enterprises under common
management (such as United Alkali). The ordinary individual
firm is more and more only a preliminary stage to bring the
business to the point where it is big enough to be “founded.”

Likewise in trade: Leafs, Parsons, Morleys, Morrison, Dillon —
all founded. The same in retail stores by now, and not merely
under the cloak of co-operation a la “stores. ”

Likewise banks and other credit establishments even in England.
A tremendous number of new banks, all shares delimited. Even old
banks like* ..., etc., are converted, with seven private sharehold¬
ers, into limited companies.

5. The same in the field of agriculture. The enormously expand¬
ed banks, especially in Germany under all sorts of bureaucratic
names, more and more the holders of mortgages; with their shares
the actual higher ownership of landed property is transferred
to the stock exchange, and this is even more true when the farms
fall into the creditors’ hands. Here the agricultural revolution
of prairie cultivation is very impressive; if it continues, the time
can be foreseen when England’s and France’s land will also be
in the hands of the stock exchange.

* Illegible. It would seem to be “Glyn & Co.”— the name of a bank.
—Ed.

910

SUPPLEMENT TO CAPITAL, VOLUME THREE

6. Now all foreign investments in the form of shares. To mention
England alone: American railways, North and South (consult the
stock exchange list), Goldberger, etc.

7. Then colonisation. Today this is purely a subsidiary of the
stock exchange, in whose interests the European powers divided
Africa a few years ago, and the French conquered Tunis and
Tonkin. Africa leased directly to companies (Niger, South Africa,
German South-West and German East Africa), and Mashonaland
and Natal seized by Rhodes for the stock exchange.

NAME INDEX

Anderson, Adam (1692-1765) — 333
Anderson, James (1739-1808) — 619,
620

Anne (1665-1714), Queen since
1702—610

Arbuthnot, George (1802-1865) — 549
Aristotle (384-322 B.C.) — 384, 385,
893

Arnd, Karl (1788-1877)— 363, 789
Arndt, Karl — see Arnd, Karl
Ashley, Antony Cooper, Earl of
Schaflesbury (1801-1885) — 627
Attwood, Matthias (1779-1851) — 538,
560

Attwood, Thomas (1783-1856) — 538,
560

Augier, Marie— 594, 612

Babbage, Charles (1792-1871) — 104,
113

Balzac, Ilonore, de (1799-1850) — 39
Baring — big banking house in En¬
gland — 535

Bastiat, Frederic (1801-1850) — 151,
345

Bellers , John (1654-1725)— 286
Bentinck, George — 416
Bernal Osborne, Ralph (1808-1882) —
137

Bessemer, Henry (1813-1898) — 71
Bosanquet, James Whatman (1804-
1877)— 371, 401
Bright, John (1811-1889)— 631
Briscoe, John (end of 18th century) —
601

Buret, Eugene (1811-1842) — 803
Busch, Johann Georg (1728-1800) —
612

Cairnes, John Elliot (1823-1875) —
383

Cantillon, Philipp Richard (1680-
1734)— 783

Carey, Henry Charles (1793-1879) —
113, 151, 398, 595, 619, 622,
774

Cato, Marcus Porcius Uticensis (234-
149 B.C.)— 331, 384, 787

Chalmers, Thomas (1780-1847) — 246,
441

Chamberleyne or Chamberlain, Hugh
(near 1630-1720)— 601

Charlemagne (Charles the Great)
(742-814), King since 768, Empe¬
ror since 800 — 597, 599, 786

Charles (1630-1685), King since
1660—602, 610

Cherbuliez, Antoine Elisee (1797-
1869)— 159

Child, Josiah (1630-1699)— 396, 602,
603

Clay, William (1791-1869)— 549

Comte, Francois Charles Louis (1782-
1837)— 617

Coquelin, Charles (1803-1852) —
402

Corbet, Thomas — 166, 171, 183, 210,
307

Cotton, William (1785-1866) — 416

Daire, Louis Francois Eugene (1798-
1847)— 786

Dante, Alighieri (1265-1321)— 19
Davenant, Charles (1656-1714) —
660

Disraeli, Benjamin
416

(1804 1881)—

912

NAME INDEX

Dombasle, Christophe Joseph A lexan-
dre Mathieu, de (1777-1843) —
760, 811

Dove, Patrick Edward (1815-1873) —
632, 638

Dureau de la Malle, Adolphe Jules
Cesar Auguste (1777-1857)— 103

Engels, Friedrich (1820-1895) — 16,
21, 69, 76, 110, 120, 122, 126,
138, 146, 152, 177, 229, 262, 301,

334,

335,

387,

408,

409,

416,

429,

438,

455,

456,

470,

474,

489,

501,

518,

524,

528,

533,

543,

549,

555,

564,

569,

573,

575,

585,

605,

701,

714,

726,

740, 773, 814, 887

Epicurus (341-271 B.C.)— 330, 598

Fawcett, Henry (1833-1884) — 628

Feller, Friedrich Ernest (1800-
1859)— 313

Fireman, Peter (bom in 1863) — 13,
14, 15, 21

Forcade, Eugene (1820-1869) — 843

Fourier, Charles (1772-1837) — 605,
757

Francis, John (1811-1882)— 602, 604

Friedrich II (1194-1250), Emperor
since 1212 — 597

Fugger — the richest German mer¬
chants and banking house of
6th century — 901

Fullarton, John (1780-1849) — 404,
442, 448, 450, 452, 453, 454,
458, 459, 463, 549

Caribaldi, Giuseppe (1807-1882) — 19

George III (1738-1820), King since
1760—396

Gllbart, James William (1794-
1863)— 339, 360, 404, 406, 540,
543, 610

Greg, Robert Hyde (1795-1875)— 107

Gurney, Samuel (1786-1856) — 410,
412, 416, 420, 521, 526, 527,
539, 543, 574

Hamilton, Robert (1743-1829)— 395
Hardcastle, Daniel — 544, 611
Harrington, James (1611-1677) — 893
Hegel, Georg Friedrich Wilhelm
(1770-1831)— 48, 615, 616, 779
Heine, Heinrich (1797-1856)— 539,
893

Henry VIII (1491-1547), King since
1509-610

Herrenschuiand, Jean (1728-1811) —
786

Heyd, Wilhelm (1823-1906)— 901
Hodgskin, Thomas (1787-1869)— 389
Horner, Leonard (1785-1864) — 89, 96,
124, 127

Hubbard, John Gellibrand (1805-
1889)— 415, 529, 543, 550, 576,
588

Hullmann, Karl Dietrich (1765-
1846)— 317, 320, 597
Hume, David (1711-1776)— 376 547

James I (1566-1625), King since
1603—610

Jevons, William Stanley (1835-
1885)— 10

Johnston, James (1796-1855) — 617,
670

Jones, Richard (1790-1855) —
266, 760, 780

Kiesselbach, Wilhelm— 327
Kincaid, John (1787-1862)— 89
Kinnear, J. G. — 442, 525

Lalng, Samuel (1780-1868)— 773
Lavergne, Louis Gabriel Leonce( 1809-
1880)— 630, 631

Law, John (1671-1729)— 441 , 603
Leatham, William Henry (1815-
1889)— 401

Lexis, Wilhelm (1837-1914)— 8, 9, 10
Liebig, Justus von (1803-1873) —
748, 770, 779, 813

NAME INDEX

913

Linguet, Simon Nicolas Henri (1736-

1794) _ 35> 79i

List, Friedrich (1789-1846) — 885

Lloyd, Samuel Jones, first Baron

Overstone

(1796-

1883)-

-404,

419,

420,

421,

422,

423,

424,

425,

426,

427,

429,

431,

432,

433,

434,

485,

510,

514,

515,

516,

518,

519,

535,

538,

547,

549,

552,

553,

554,

556,

561,

563,

564,

573

Luiac, Eli (1723-1796)— 319
Locke, John (1632-1704)— 352, 622
Loria, Achille (born ill 1857) — 16,
17, 18, 891, 892, 894, 900
Luther, Martin (1483-1546) — 331,
346, 393, 394, 600, 611, 901
Louis XJV (1638-1715), King siuce
1643—103

Macaulay, Thomas Babington (1800-
1859)— 603

MacCulloch, John Ramsey ( 1789 -
18641—65, 224, 238
Mago (VI B.C.)— 384
Malthus, Thomas Robert (1766-
1834)— 36, 39, 44, 47, 169, 191,
198, 396, 645, 659, 671
Manley, Thomas (1628-1690) — 603
Maron, H. — 808

Marx, Karl (1818-1883) — 1, 2, 3, 4,
6, 7, 8, 9, 10, 13, 14, 15, 16, 17,
19, 20, 21, 138, 177, 179, 182,
429, 546, 605, 607, 889, 891,
892, 893, 894

Massie, Joseph (died in 1784) —
333, 352, 359, 362, 365, 376, 811
Maurer, Georg Ludwig von (1790-
1872)— 177

Menger, Karl (1840-1921)— 10
Mill, John Stuart (1806-1873) —
389, 398, 519, 555, 575, 878
Mirabeau, Victor, marquis da (1715-
1789)— 756

Mommsen, Theodor (1817-1903) — -
327, 384, 787

Moore, Samuel (1830-1912) — 3
Morgan, Lewis Henry (1818-1881) —
177

Morton, John Chalmers (1821-
1888)— 628, 630

Morton, John Lockart — 629, 630,
675

Moser, Justus (1720-1794)— 791
Mounier, L. — 808, 811
Muller , Adam Heinrich (1779-
1829)— 356, 397

Nasmyth, James (1808-1890) — 96
Newman, Francis William (1805-
1897)— 595, 657, 773, 811
Newman, Samuel Philipps (1797-
1842)— 279

Newmarch, William (1820-1882) —
523, 526, 540, 542, 556, 566,
567, 570, 571, 572, 578, 579,
580, 581, 582, 583, 585
Norman, George Warde (1793-1882) —
417, 418, 419, 427, 551
North, Dudley (1641-1691) — 612, 622

O'Connor, Charles (1804-1884)— 385
Odermann (1815-1904) — 313
Opdyke, George ( 1805-1880) — 363
Overstone — see Lloyd
Owen, Robert (1771-1858)— 605

Palmer, John Horsley (1779-1858) —
557, 559, 569

Palmerston, Henry John Temple,
Lord (1784-1865)— 90, 626

Parmentier, Antoine Augustin (1737-
1813) — 103

Passy, Hippolyte Philibert (1793-
1880)— 769, 780, 783, 786, 789

Paterson, William (1658-1719) — 603

Patten — see Wilson Patten

Pecqueur, Charles — see Pecqueur,

Constantin

Pecqueur, Constantin (1801-1887) —
608

Peel, Robert (1788-1850)— 547, 549

Peretre, Jakob Emile (1800-1875) —
605

Pereire, Isaac (1806-1880) — 441

Petty, William (1623-1687)— 352,
465, 660, 783

Pindar (522-443 B.C.)— 386

914

NAME INDEX

Pitt, William, junior (1759-1806) —
396

Pliny the Elder, Gatus Plinius
Secundus (23-79) — 103

Poppe, Johann Heinrich Moritz
(1776-1854)— 336

Price, Richard (1723-1791) — 394, 395,
396

Proudhon, Pierre Joseph (1809-
1865)— 39, 345, 346, 355, 607,
624, 843

Quetelet, Lambert Adolphe Jacques
(1796-1874)— 860

Ramsay, George (1800-1871) — 39, 44,
279, 362, 379, 767
Reden, Friedrich Wilhelm Otto Lud¬
wig (1804-1857)— 465
Rhodes, Cecil John (1853-1902)- 910
Ricardo, David (1772-1823)— 8, 16,
38, 45, 65, 107, 114, 179, 183,
198, 202, 204, 224, 237, 238,

241, 242, 243, 249, 259, 324,

430, 546, 547, 548, 649, 650,

659, 672, 679, 681, 746, 757, 772,
815, 841, 853

Rodbertus, Johann Karl (1805-
1875)— 8, 139, 778, 801, 853
Roscher, Wilhelm (1817-1894)— 225,
307, 324, 398, 826
Rothschild, James (1792-1868) — 468
Rubichon, Maurice (1766-1849) — 629,
808, 811

Russell, John, Lord (1792-1878) —
416

Shaw, George Bernard (1856-1950) —
10

Siemens, August Friedrich (1826-
1908)— 71

Siemens, Karl Wilhelm (1825-
1883)— 71

Simon, John (1816-1904) — 91, 93, 95

Sismondi, Jean Charles Leonard
Simonde de (1773-1842)— 477, 803

Smith, Adam (1723-1790) — 142, 191,

198, 213, 225, 238, 324, 329,

331, 383, 396, 442, 470, 472,

615, 751, 767, 768, 769, 770,

772, 787, 826, 836, 841, 842, 845

Sombart, Werner (1863-1941 ) — 893,
894

Steuart, James (1712-1780) — 365,
786

Storch, Heinrich Friedrich (1 766-
1835)— 183, 658, 826, 846, 851

Thiers, Louis Adolphe (1797-1877) —
624

Thomas, Sydney Gilchrist (1850-
1885)— 71

Thun, Alphonse (1853-1885)— 901

Tacqueville, Alexis Charles Henri
(1805-1859)— 803

Tooke, Thomas (1774-1858) — 354,
361, 370, 371, 401, 404, 417, 439,
442, 443, 444, 446, 450, 452,
458, 485, 524, 539, 549, 556,
570, 572, 807, 842

Torrens, Robert (1780-1864) — 38, 39,
44, 107, 353, 354, 549

Tuckett, John Debell (died in
1864)— 601

Turgot, Anne Robert Jacques (1727-
1781)— 622

Saint-Simon, Claude Henri (1760-
1825) — 604, 605

Say, Jean Baptiste (1767-1832) —
279, 841, 846

Schmidt, Conrad (1863-1932) — 10,
12, 13, 16, 18, 21, 894, 895
Senior, Nassau William (1790-
1864)— 34, 44
Shaftesbury — see Ashley

Ure, Andrew (1778-1857)— 81 , 104.
386

Verri, Pietro (1728-1797) — 279
Vinqard, Pierre (1820-1882)— 786
Vissering, S. (1818-1888)— 318, 319

NAME INDEX

915

Wakefield , Edward Gibbon (1796-
1862)— 756, 769

Walton, Alfred (1816-1883)— 620
West, Edward (1782-1828)— 242, 659
Wilson, James (1805-1860) — 442,

449, 532, 533, 541, 542, 549, 562,
576, 577, 578, 580, 581, 583, 585
I'Vi/son Patten, John (1802-1892) —
90

Wolf, Julius (born in 1862) — 15,
16, 19

Wood, Charles (1800-1885)— 553,
582, 583, 584

INDEX OF AUTHORITIES
QUOTED IN CAPITAL, VOLUME III

I. AUTHORS

ANDERSON, Adam. An Historical
and Chronological Deduction of the
Origin of Commerce, from the
earliest accounts to the present
time, Vol. 2, London 1764. —
333.

ANDERSON, James. A Calm In¬
vestigation of the Circumstances
that have led to the present scar¬
city of grain in Britain, London
1801.— 619.

ARISTOTLE. De Republica Libri
VIII et Oeconomica. Ex recensione
Immanuelis Bekkery, Oxonii
1837.— 384.

ARND, Karl. Die naturgemasse
Volkswirtschaft, gegeniiber dem
Monopo liengeiste und dem Kom-
munismus, mit einem Ruckblicke
auf die einschlagende Literatur,
Hanau 1845.— 363, 787.

AUGIER, Marie. Du credit public
et de son histoire depuls les temps
anciens fusqu'a nos jours, Paris
1842.— 594, 612.

BALZAC, Honore de. Les paysans,
1845.— 39.

BASTIAT, Fr. Gratulte du credit.
Discussion entre M. Fr. Bastiat
et M.P.J. Proudhon, Paris
1850.-345, 346.

BELL, G. M. The Philosophy of
Joint-Stock Banking, London
1840.-545.

BOSANQUET, J. W. Metallic, Pa¬
per, and Credit Currency, and the
means of regulating their quantity
and value, London 1842. — 371,
401.

BRISCOE, John. To the Knights,
Citizens and Burgesses in Par¬
liament assembled, 1695. — 601.

BURET, Eugene. De la mis'ere des
classes laborieuses en Angleterre
et en France etc., Paris 1840. —
803.

BUSCH, Johann Georg. Theoretisch-
praklische Darstellung der Hand-
lung in ihren mannigjaltlgen
Geschdften (1792). Third extended
and improved edition with in¬
sertions and supplements by
G. P. H. Normann, Hamburg
1808.— 612.

CAIRNES, J. E. The Slave Power :
its character, career and probable
designs etc., London 1862. — 383.

CANTILLON, Richard. Essal sur
la nature du commerce en general.
Traduit de I'Anglals, London
1755.— 783.

CAREY, H. C. Principles of Social
Science, Vol. Ill, Philadelphia
I860.— 398.

CHALMERS, Thomas. On Political
Economy in Connection with the
Moral State and Moral Prospects
of Society, 2nd ed., Glasgow
1832.— 441.

INDEX OP AUTHORITIES QUOTED IN CAPITAL, VOLUME III 917

CHAMBERLAIN (Chamberleyne),
Dr. Hugh. A few Proposals hum¬
bly recommending etc. establishing
a Land Credit in this Kingdom,
Edinburgh 1700. — 601.

CHERBLJLIEZ, A. Riche ou pauvre.
Exposition succinte des causes et
des effets de la distribution ac-
tuelle des richesses sociales, Paris
et Geneve 1840.— 159.

CHILD, Josiah. Tralles sur le com¬
merce et sur les avantages qui
resultent de la reduction de I'in-
teret de V argent (1694), Amster¬
dam et Berlin 1754. — 396, 603.

COMTE, Charles. Traite de la pro-
priete, T. I, Paris 1834. — 617.

COQUELIN, Charles. Du credit et
des banques. In Revue des Deux
Mondes, Paris 1842. — 402.

CORBET, Thomas. An Inquiry into
the Causes . and Modes of the
Wealth of Individuals-, or the
principles of trade and specula¬
tion explained, London 1841. —
166, 171, 183, 307.

DUREAU DE LA MALLE, A. J.
Economic politique des romains,
Paris 1840.— 103

ENGELS, Friedrich. Die Lags der
arbeitenden Klasse in England.
Nach eigner Anschauung und au-
thentischen Quellen, Leipzig 1845.
—773.

— The Stock Exchange, Supplementa¬
ry Notes to Capital, Volume Three

(1895).— 907.

FELLER, Dr. F. E. und ODER-
MANN, Dr. C. G. Das, Gante
der kaufmonnischen Arithmetik,
Pur Handels-, Real- und Ge-
werbeschulen, so wie sum Selbst-
unterricht fur Geschaftsminner
ubcrhaupt ( 1842), 7. Auflage, Leip¬
zig 1859.— 313.

FIREMAN-, Peter. Krttik der Marx-
schen Werttheorie. In Jahrbucher
fur Nationalokonomie und Stati-
sttk, Dritte Folge, Bd. Ill, Jena
1892.— 13, 14.

FORCADE, Eugene. La guerre du
soctalisme, II. L'economie poli¬
tique revolutionnatre et sociale. In
Revue des Deux Mondes, T. 4,
Bruxelles 1848. — 843.

FRANCIS, John. History of the
Bank of England, its Times and
Traditions, 3rd ed., London
1848.— 602, 604.

FULLARTON, John. On the Regu¬
lation of Currencies ; being an
examination of the principles, on
which it is proposed to restrict,
within certain fixed limits, the
future issues on credit of the
Bank of England and of the other
banking establishments throughout

the country, London 1845. — 404,
448, 450, 452, 453, 454, 458, 459.

GILBART, William James. The
History and Principles of Banking,
London 1834.— 339, 404, 405, 406,
610.

—An Inquiry into the Causes of
the Pressure on the Money Market
during the Year 1839, London
1840.-540, 543.

A Practical Treatise on Banking

(1827), 5th ed., London 1849.— 360.

GREG, R. H. The Factory Question,
Considered in Relation to its
Effects on the Health and Morals
of those Employed in Factories.
And the Ten Hoars' Bill, etc.,
London 1837. — 107.

HAMILTON, Robert. An Inquiry
Concerning the Rise and Prog¬
ress, the Redemption and Present
State and the Management of
the National Debt of Great Brit
ain, 2nd ed., Edinburgh 1814.—
395.

SO— 2494

918 INDEX OF AUTHORITIES QUOTED IN CAPITAL, VOLUME IN

HARDCASTLE, Daniel. Jr. Banks
and Bankers, 2nd ed., London
1843.-544, 611.

HEGEL, Georg Wilhelm Friedrich.
Grundlinlen der Philosophic des
Rechts, oder N aturrecht undS taats-
wissenschaft im Grundrisse. In
Werke, published by Dr. Eduard
Gansr 7th ed., Berlin 1840. —
615, 616.

HEINE, Heinrich. Disputation. In
"Gedichte, Dritler Band, Roman-
zero, 3. Buch, Hebraische Melo-
dien." — 539.

HEYD, Dr. Wilhelm. Geschichte des
Levantehandles im Mlttelalter,
Stuttgart 1879. — 901.

HODGSKIN. Labour Defended
Against the Claims of Capital',
or the Unproductiveness of Capital
Proved. By a Labourer, London

|OOC _ OQQ QQQ

HUBBARD, John Gellibrand. The
Currency and the Country, London
1843.— 415, 529.

HtjLLMANN, Karl Dietrich. Stadte-
wesen des Mittelalters, Bonn
1826-29.— 317, 320, 597.

JOHNSTON, James F. W. Notes
on North America Agricultural,
Economical and Social, Edinburgh
and London 1851. — 617, 670, 672.

JONES, Richard. An Introductory
Lecture on Political Economy,
London 1833. — 266.

— An Essay on the Distribution of
Wealth, London 1831. — 760.

KIESSELBACH, Wilhelm. Der
Gang des Welthandels und die
Entwicklung des europaischen Vol-
kerlebens im Mlttelalter, Stutt¬
gart I860.— 327.

KINNEAR, J. G. The Crisis and
the Currency, London 1847. —
442, 525.

LAING, Samuel. National Distress;
its Causes and Remedies, London
1844.— 773.

LAVERGNE, Leonce de. The Rural
Economy of England, Scotland
and Ireland (translated from Eco¬
nomic Rurale de I’Angleterre,
Paris 1854), London 1855.—
630.

LEATHAM, William. Letters on
the Currency. Addressed to Charles
Wood, London 1840.— 401.

LEXIS, W. Die Marxsche Kapital-
theorie. In Conrads Jahrbucher
fur N ationaldkonomie und Sta-
tistik, Neue Folge, Bd. XI, Jena
1885.— 8, 9, 10.

LINGUET, N. Theorie des lois
ctvites ou principes fondament,aux
de la societe, T. I, London
1767.— 791.

LIST, Dr. Friedrich. Die Ackerver-
fassung, die Zwergwirtschaft und
die Ausicanderung. From the Deut¬
sche Viertelfahrsschrift , 1842, Heft
IV. Nr. XX, specially printed,
Stuttgart und Tubingen 1842. —
885

LORIA, Achille. Karl Morx. In
Nuova Antologia, April 1883. —
16.

— La Teoria Economica della Costitu-
zione Politico, Roma, Torino,
Firenze 1886. — 16.

— Die Durchsfhnittsprofitrote a uf
Grundlage des Marxschen Wertge-
setzes. Von Dr. Conrad Schmidt.
Stuttgart 1889. Review in Con¬
rads Jahrbucher fur Naiiona 16-
konomie und Statistik, Nouc Folge,
Bd. XX, Jena 1890.— 18.

— L'Opera postuma di Carlo Marx.
In Nuova Antologia, Vo], LV,
February 1895.— 892.

LUTHER, Martin. An die Pfarherrn
wider den Wucher zu predigen,
Wiltemberg 1540, Luther’s Werke,
Wiltemberg 1589, 6. Teil. — 346,
394, 611.

Von Kaufshandlung und Wucher,
Wittemberg 1524, Luther’s

INDEX OF AUTHORITIES QUOTED IN CAPITAL, VOLUME III g]9

Werke , Wittemberg 1589, 6.

Teil.— 331.

LUZAC, E. Hollands Rijkdom , Be¬
fit Izende den Oortprong van den
Koophandel , en van de Magt van
deten Staat etc., Leyden 1782. —
319.

MACAULAY, Th. B. The History
of England. From the accession
of James the Second, Vol. 4,
London 1857. — 603.

MALTHUS, T. R. Definitions In
Political Economy, London
1827 —36. London 1853.— 39.

— Principles of Political Economy,
considered with a view to their
practical application, 2nd ed.,
London 1836. — 36, 169.

MANLEY, Thomas. Interest of Mon¬
ey Mistaken, or a treatise, prov¬
ing that the abatement of interest
is the effect and not the cause
of the riches of a nation and
that six per cent is a proportion-
able interest to the present condi¬
tions of Kingdom, London 1668. —
603.

MARON, Dr. H. Extensiv oder in-
tensiv? Ein Kapitel aus der land-
wirtschaftlichen Betriebslehre, Op-
peln 1859. — 808.

MARX, Karl. Das Kapital, Krltik
der Politischen Oekonpmie, Buch I.
—1, 3, 7, 17, 25, 28, 30, 34, 37,
39, 50, 51, 75, 83, 91, 92, 94,
142, 146, 160, 182, 231, 246,

262, 307, 318, 400, 445, 459,

522, 523, 616, 628, 631, 756, 795,
835, 879, 889, 898.

—Buch II.— 1, 2, 3, 8, 17, 25, 43,
50, 71, 72, 73, 74, 75, 76, 117,
267, 281, 288, 301, 304, 341,

444, 448, 480, 530, 562, 774,

828, 836, 838, 841.

— Das Kapital etc. Erster Band,
Buch I: Der Produktionsprozess
des Kapitals, 2. Auflage, Ham-
hurge 1872. — 7.

3. Auflage, Hamburg 1883. — 7,
146.

— Das Kapital etc. Zweiter Band,

30"

—Buch II: Der Zirkulationsprozess
des Kapitals, Hamburg 1885. —
1, 2.

— Mis'ere de la philosophic. Reponse
a la philosophic de la mis'ere
de M. Proudhon, Paris 1847. —
607, 608, 619.

— Zur Kritik der politischen Oeko-
nomle, Erstes Heft, Berlin 1859. —
182, 317, 448, 546, 547, §48, 549,
560, 607, 608.

MASSIE, Joseph. An Essay on the
Governing Causes of the Hatural
Rate of Interest etc. London
1750.— 352, 359, 362, 365.

MILL, John Stuart. Essays on
Some Unsettled Questions of
Political Economy., London
1844.-878.

— Principles of Political Economy,
with some of their Applications
to Social Philosophy, 2nd ed.,
London 1849. — 389, 398.

MOMMSEN, Theodor. Romlsche Ce-
schlchte, 2. Auflage, Berlin 1856
bis 1857.— 327, 384, 787.

MORTON, J. C. On the Forces used
in Agriculture. Report made at
the Society of Arts. In Journal
of the Society of Arts. December 9.
1859.— 628.

MORTON, John Lockhart. The Re¬
sources of Estates: being a trea¬
tise on the agricultural improve¬
ment and general management
of landed property, London 1858. —
630, 675.

MOUNIER, L. M. De I'agriculture
en France, d’apres les documents
officiels avec des remarques par
M. Rublchon, Paris 1846. — 808.

MULLER, Adam H. Die Elements
der Staatskunst, Berlin 1809. —
356, 397.

NEWMAN, Francis William. Lec¬
tures on Political Economy, Lon¬
don 1851.— 595, 657, 773.

NEWMAN, S. P. Elements of Poli¬
tical Economy, Andover and New

York 1835.— 279.

920 INDEX OF AUTHORITIES QUOTED IN CAPITAL, VOLUME III

NORTH, Sir Dudley. Discourses
upon Trade', principally directed
to the cases of the interest, coinage,
clipping, increase of money, Lon¬
don 1691.— 612.

O’CONNOR, Charles. Speech on
December 19, 1859. In New York
Daily Tribune, December 20,

4 ocp go c

ODERMANN, Dr. C. G. See
FELLER.

OPDYKE, George. A Treatise on
Political Economy, New York
1851.— 363.

PASSY, Hippolyte. Des syst'emes
de culture et de leur influence
sur I’economie sociale. 2nd ed.,
Paris 1853.— 769, 780, 783, 786,
789.

PECQUEUR, Ch. Theorle nouvelle
d'economte sociale et politique ou
etudes sur T organisation des socie-
tis, Paris 1842. — 608.

PL1NIUS, Gajus Secundus, der Ael-
tere. Historiae naturalis Libri
XXXVII. Parisiis 1826.— 103.

PRICE, Richard. An Appeal to
the Public on the Subject of the
National Debt (1772), 2nd ed.,
London 1774. — 395.

— Observations on Reversionary Pay¬
ments, on schemes for providing
annuities for widows, and for
persons in old age', on the method
of calculating the values of assur¬
ances on lives, and on national
debt etc. (1771), 2nd ed., London

1772, _ ^395,

PROUDHON, P. J. See BASTIAT.

RAMSAY, George. An Essay on
the Distribution of Wealth, Edin¬
burgh 1836.— 279, 362, 379.

REDEN, Dr. Freiherr von. Verglet-
chende K ulturstatistik der Ge-
biets — und Bevolkerungsverhalt-

nisse der GrofSstaaten Europas,
Berlin 1848.— 465.

RICARDO, David. On the Princi¬
ples of Political Economy and
Taxation, ed. by MacCulloch,
London 1852.— 65, 114, 179, 183,
203, 224, 238, 649, 650, 772,
815, 841, 853.

RODBERTUS-JAGETZOW, Karl.
Soziale Briefe an von Kirchmann.
Dritter Brief: Widerlegung der
RicardoschenLehrevon derGrund-
rente und Bergrundung einer
neuen Rententheorie, Berlin 1851.
—778.

ROSCHER, Wilhelm. Die Grund-
lagen der Nationalokonomie. Ein
Hand- und Lesebuch fur Geschafts-
mdnner und S tudierende (2. Aufl.,
Stuttgart und Augsburg 1857). —
225, 307, 324, 398.

RUBICHON, Maurice. Du mecanis-
me de la societe en France et en
Angleterre (1833). New edition,
Paris 1837 — 629.

SAINT-SIMON. Nouveau Christla-
nisme, dialogues entre un con-
servateur et un novateur, Paris
1825.— 604, 605.

SAY, Jean-Baptiste. Traite d'eco-
nomle politique, ou simple expo¬
sition de la maniere dont se
forment, se distribuent et se con-
somment les rlchesses (1803), 3rd
ed., Paris 1817.— 279, 841.

SCHMIDT, Conrad. Die Durch-
schnittsprofitrate auf Grundlage
des Marxschen Wertgesetzes, Stutt¬
gart 1889. — 10.

— Die Durchschnlttsprofitrate und
das Marxsche Wertgesetz. In
Die Neue Zett, XI Jahrg., Bd.
I., Stuttgart 1893. — 13.

SISMONDI, J. Ch. L. SIMONDE
de. Nouveaux principes d’economie
politique ou de la richesse dans
ses rapports avec la population,
Paris 1819.— 476, 477.

SMITH, Adam. An Inquiry into the
Nature and Causes of the Wealth

INDEX OF AUTHORITIES QUOTED IN CAPITAL. VOLUME III 921

of Nations (1776), published by
Wakefield, London 1835 to 1889. —
142, 329, 470, 472, 767, 768,
772, 773, 774, 775, 826, 842.

SOMBART, Werner. Zur Kritik des
okonomischen Systems von Karl
Marx. In Archiv fur soziale Ge-
setzgebung undS tatistlk , Bd. VIII,
Berlin 1894. — 893.

STEUART, Jacques (Janies). Re¬
cherche des principes de I'economie
politique ou essai sur la science
de la politique interleure des
nations libres (Translated from
An Inquiry into the Principles
of Political Economy etc., London
1767.), Paris 1789.— 365.

STIEBEL1NG, George C. DasWert-
gesetz und die Prostrate, New
York 1890 —19, 20, 21.

STORCH, Henri. Cours d'economie
politioue, ou exposition des prin¬
cipes qui determinent la prospe-
rite des nations, St. Petersburg
1815.— 183 , 826, 846.

— Considerations sur la nature du
revenu national, Paris 1824. — 846,
851.

THIERS, Adolphe. De la propriete,
Paris 1848.— 624.

THUN, Alphons. Die Industrie am
Niederrhein und ihre Arbeiter,
Leipzig 1879. — 901.

TOOKE, Thomas. A History of
Prices, and of the State of the
Circulation, from 1793 to 1637 ;
preceded by a brief sketch of the
stale of the corn trade in the
last two centuries, London 1838.
—370.

— An Inquiry into the Currency
Principle; the connection of the
currency with prices and the expe¬
diency of a separation of issue from
banking, 2nd ed., London 1844.
—354 , 371, 401, 402 , 404 , 439,
442.

— A History of Prices and of the
State of the Circulation from
1839 to 1847 inclusive; with
a general review of the currency

question etc., London 1848. —
361.

-and NEWMARCH, William. A
History of Prices and of the State
of the Circulation during the nine
years 1848-1856, London 1857.
—807.

TORRENS, Robert. An Essay on
the Production of Wealth with
an Appendix, in which the Prin¬
ciples of Political Economy are
applied to the actual circumstances
of this country, London 1821. —
38.

On the operation of the Bank
Charter Act of 1844 etc., 2nd
ed., London 1847. — 353.

TUCKETT, J. D. A History of the
Past and Present State of the
Labouring Population, including
the progress of agriculture, manu¬
factures and commerce, shewing the
extremes of opulence and destitu¬
tion among the operative classes
with practical means for their
employment and future prosperity,
London 1846. — 601.

URE, Andrew. Philosophie des ma¬
nufactures ou economie industrielle
de la fabrication du cotton, de
la laine, du lin et de la sole, avec la
description des diverses machines
employees dans les ateliers an¬
glais (Translation of Philosophy
of Manufactures etc., London
1835.), Paris 1836.— 386.

VERRI, Pietro. Meditazioni sulla
Economia Politico. In Scrittorl
Classici Italiani di Economia Po¬
litico, Parte Moderna, Vol. 15,
Milano 1804.— 279.

VINCARD, Jr. Histoire du travail
et des travallleurs en France, Par¬
is 1845.— 786.

VISSERING, S. Handboek van Prak-
tische Staathulshoudkunde, Am¬
sterdam 1860 bis 1865.— 318, 319.

922 INDEX OF AUTHORITIES QUOTED IN CAPITAL, VOLUME III

WAKEFIELD, Edward Gibbon. En¬
gland and America. A companion
o ) the social and political state
of both nations, London 1833. —
756.

WALTON, Alfred A. History of the
Landed Tenures of Great Britain
and Ireland, from the Norman
conquest to the present time, Lon¬
don 1865.— 620, 621.

WEST, Edward. Essay on the Ap¬

plication of Capital to Land etc.
By a Fellow of University College
Oxford, London 1815. — 242.

WOLF, Julius. Das Rdtsel derDurch-
schnittsprofitrate bei Marx. In
Conrads Jahrbucher fur National-
okonomie und Statirtik, Dritte
FolgerBd. II, Jena 1891. — 15, 16.
i Sozialismus und kapitalistische Ge-
sellschaftsordnung. Kritische Wur-
digung belder als Grundlegung
einer Soztalpolttik, System der
Sozialpolitik, Bd. I, Stuttgart
1892.— 19.

923

II. ANONYMOUS

The City or the Physiology of London
Business. With sketches on change,
and at the coffee houses. (David
Morier Evans.) London 1845. —
389.

Competition and Co-operation, 1832.
-884.

The Currency Theory Reviewed in a
letter to the Scottish People on the
menaced interference by Govern¬
ment with the existing system of
banking in Scotland. By a Banker
in England. Edinburgh 1845.—
406, 414, 435, 436, 520.

Doctrine de Saint-Simon. Exposition.
Premiere annee. 1828-1829. (En-
fantin.) 3rd ed. Paris 1831. — 605.

An Inquiry into those Principles Re¬
specting the Nature of Demand and
the Necessity of Consumption, late¬
ly advocated by Mr. Malthus.
London 1821.— 194, 645.

Observations on Certain Verbal Dis¬
putes in Political Economy , particu¬
larly relating to value, and to
demand and supply. London 1821.
-189, 191.

Religion Saint-Simonienne. Economic
politique et Politique Articles ex¬
traits au Globe. (Enfantin,) Paris
1831.— 605, 607.

Some Thoughts of the Interest on En¬
gland. By a Lover of Commerce.
London 1697. — 606.

The Theory of the Exchanges. The
Bank Charter Act of 1844 etc.
(G. Henry Roy.) London 1864.—
361, 364.

The Three Prize Essays on Agricul¬
ture and the Corn Law. Published
by the National Anti-Corn-Law
League. (George Hope, W. R.
Grey, Arthur Morse.) Manchester,
London 1842. — 627.

III. NEWSPAPERS AND PERIODICALS

Archil > fur soziale Gesetzgcbung und
Statistik, published by Dr. Hein¬
rich Braun, Bd. VII, Berlin 1894.
(Essay by Sombart.) — 893.

Daily Newt, December 10, 1889. —
366.

» « December 15, 1892. —

473, 474.

•< n January 18, 1894. —

543.

Die Neue Zeit, XI. Jahrg., Bd. I,
1893. (Essay by Conrad Schmidt.)
—13.

Economist, March 18, 1845. — 436.

May 22, 1847.— 540. 585,
586, 587 , 588, 589.

.. August 2, 1847. — 590.

>• October 23, 1847.— 563.

« November 20, 1847. —

439, 497, 498.

.. December 11, 1847. —

573.

n November 30, 1850. —

592.

•• January 11, 1851. — 591.

» January 22, 1853. — 358.

.. July 19, 1859.— 397.

J ahrbucher fur N ationalokonomie
undStatistik, published by J. Con¬
rad.

•> 1885, Neue Folge, Bd.

XI. (Essay by W. Le¬
xis.)— 8.

„ 1890, Neue Folge, Bd. XX.
(Essay by Achilla
Loria.) — 18.

„ 1891, III. Folge, Bd.

II. (Essay by Julius
Wolf.)— 15.

„ 1892, III. Folge, Bd.

III. (Essay by Peter
Fireman.) — 13.

Journal of the Society of Arts, Vol.
VII, No. 368, London, December
9, 1859. (Report by J. C. Morton.)
—629.

Manchester Guardian, November 24,
1847.— 409.

Morning Star, December 14, 1865.

(Speech by John Bright.)— 631, 632.
New York Daily Tribune, December
20, 1859. (Speech by O’Connor.)
—385 , 386

Nuova Antologia, April 1883. (Es¬
say by Acbille Lo¬
ria.) — 16.

« » February 1895.

(Essay by Acbille Lo¬
ria.) — 891.

Revue des Deux Mondes, 1842. (Es¬
say by Coquelin.) — 402.
- ” 1848. (Es¬

say by Forcade.) — 843.
Times, London, December 3, 5, 7,
1857.— 439.

Edinburgh Review. — 780.

025

IV. PARLIAMENTARY REPORTS AND OTHER OFFICIAL
PUBLICATIONS

Anno Vicesimo Sexto Georgii III. 542, 543, 547, 548, 549, 551, 552,

Regis. Caput XXXI. An Act lor 553, 555, 556, 557, 559, 560, 561,

vesting certain Sums in Commis- 562, 563, 565, 566, 567, 568 , 569,

sioners, at the End of every Quar- 571, 572, 574, 575, 576, 579, 580,

ter of a year, to be by them ap- 581, 583, 584, 585, 774.

plied to the Reduction of the Na- — Part II, Appendix and Index,
tional Debt (1786). — 396. — 521, 551.

First Report on Children’s Employ- Report from the Select Committee
ment in Alines and Collieries, on the Bank Acts ; together with
April 21, 1829. — 88. the Proceedings of the Committee,

Coal Mine Accidents. Abstract of Minutes of Evidence, Appendix

Return to an Address of the Honour- and Index. Ordered, by the House

able The House of Commons dated of Commons, to be Printed, 1 July

3 May 1861, etc. — Ordered, by the 1858. — 8, 474, 475, 485, 497, 499,

H. of C., to be Printed, 6 February 523 , 524.

1862. — 88. First Report from the Secret Corn-

First Report from the Select Com- mittee on Commercial Distress;

mittee of the House of Lords on with the Minutes of Evidence,

the Sweating System; together with Ordered, by the House of Com-

the Proceedings of the Committee, mons, tobe Printed, 8 June 1848. —

Minutes of Evidence. Ordered, by 8, 404, 410, 411, 415, 417,

the H. of C., to be Printed, 11 Au- 468, 473, 485, 487, 511, 539.

gust 1888. — 335. Report from the Secret Committee

Public Health Sixth Report of the Med- of the House of Lords, Appointed

ical Officer of the Privy Council. to Inquire into the Causes of the

With Appendix. 1863, London Distress which has for some time

1864. — 91, 92, 93, 94, 95, 96. prevailed among the commercial

Report from the Select Committee on classes, and bow far it has been

Bank Acts; together with the Pro- affected by the laws for regulating

ceedings of the Committee, Min- the issue of bank-notes payable

utes of Evidence, Appendix and on demand. Together with the

Index. Ordered, by the House of Minutes of Evidence and an Ap-

Commons, to be Printed, 30 July pendix. Ordered, by the House

1857. Part I. Report of Evidence. of Commons, to be Printed, 28

—413,417,418,419,420,422,423, July 1848.

424, 425, 427, 429, 430, 431, 432, .. Reprinted 1857.— 8, 412, 419,

433 , 434, 449 , 493 , 496, 500, 502 , 420, 524 , 526, 527 , 552 , 556, 557,

509, 510, 512, 519, 521, 523, 524, 559, 562, 569.

526, 527, 528, 529, 530, 531, 532, Reports of the Inspectors of Facto-

533, 534. 535, 537, 538, 539, 541, ries, etc.— 626.

926

INDEX OF AUTHORITIES QUITED IN CAPITAL VOLUME lit

•• for the half-year ending 31st
October 1S45 , London 1846. — 124.
»■ for 31st October 1846, London

1847.— 124, 125.

•• for 31st October 1847, London

1848. — 125, 126.

» for 31st October 1848, London

1849. — 78, 108.

>• for 30th April 1849, London

1849. — 126.

>■ for 31st October 1849, London

1850. — 127.

for 30th April 1850, London

1850. — 109, 127.

•’ for 31st October 1850, London

1851. — 122, 127.

>• for 30th April 1851, London

1851.— 122.

*> for 31st October 1852, London
1853.— 96, 98, 99.

« for 30th April 1853, London

1853. — 127.

•> for 31st October 1853, London

1854. — 127.

n for 30th April 1854, London
1854.— 127, 128.

>• for 31st October 1855, London
1856.— 89.

” for 31st October 1858, London

1859.— 77, 122, 123, 124.

•• for 30th April 1859, London

1859. — 128.

» for 31st October 1859, London

1860. — 128.

•• for 30th April 1860, London

1860. — 128.

« for 31st October 1860, London

1861. — 128.

” for 30th April 1861, London

1861. — 91, 129, 131.

•> for 31st October 1861, London

1862. — 129.

<• for 30th April 1862, London

1862. — 91, 131.

•< for 31st October 1862, London

1863. — 78, 102, 129, 131.

» for 30th April 1863, London

1863. — 132.

•> for 31st October 1863, London

1864. — 88, 101, 102, 110, 130,
132, 133, 134, 136.

•• for 30th April 1864, London

1864.— 130, 135.

SUBJECT INDEX

Absolute ground-rent

— its definition — 760, 762
— its formation — 761-68
— its essence — 771
— in the extracting industry — 771
Accumulation of capital

— definition — 218, 219, 244, 263,
266

— and rise of the productive power
of labour— 219, 248, 249, 250,
397, 398, 399

— and relative over-population —
218, 222, 224, 245, 249, 250,
251, 254, 255, 256, 263, 264
— and concentration and central¬
isation of capital — 246
— and primitive accumulation —
246

— and a drop in the rate of profit
—250, 256, 259, 262, 265
— factors stimulating accumula¬
tion — 265

Accumulation of loan capital
— is accumulation of claims of
ownership upon labour — 476
— signifies the expansion of the
real process of reproduction —
477, 478, 484, .487, 488
— and bankers — 478
— is inversely proportional to the
accumulation of industrial cap¬
ital— 488, 489, 494, 495
— discovery of Australian and Ca¬
lifornian gold mines — 501, 502
— as a form distinct from actual
accumulation — 501, 502, 503
— and the crisis — 502
— its source — 503, 505, 506
— special forms of — 506, 507
Advance

—its forms— 340, 344, 349
— its character — 345

— its movements — 347, 348
— kinds of advance — 455
Advanced capital — 30, 32, 33, 35,'
36, 506

Africa and its division by the Euro¬
pean powers — 910
Agriculture

— change of the value of capital
in the case of agriculture — 114
— capitalist system works against
a rational agriculture — 121, 812
— and manufacture — 333, 334
— and the process of reproduction
—450

—features of small-peasant agri¬
culture — 614

— capitalist nature of— 614, 615,
617, 618

— and private property in land —
617, 618

— and classes — 618
— rent works against a rational
agriculture — 619, 620
— in England — 629, 630
— in Europe — 671
— relative over-production in — 672
— natural laws of — 677
— pre-capitalist — 677
— slow and uneven development
in— 678, 801, 802
— organic composition of capital
in— 759, 760, 762, 763, 764,
766

— drawbacks of small agriculture
—807, 808
America

— as a centre of the crises of 1825-
57—71, 492

— American census — 76
—Civil War in A.— 109, 128, 129
— development of production in
A.— 119. 120

928

SUBJECT INDEX

— ownership in A. — 385, 619, 803
804

— stock companies in A. — 438
— trade of A. with Asia — 565, 566
— rate of exchange of A. with
England — 584

— rate of exchange of EngLand
with A. — 582, 584
— land speculation in A. — 669
—quality of land in A. — 769
Argentina — 725
Asia

— high rate of profit in A. — 151
— pre-capitalistic modes of pro¬
duction in A. — 333, 596
— combination of small-scale ag¬
riculture and home industry in
A.— 333

— capitalist nations as debtors of
A.— 512

— export of silver to A. — 551, 565
— rate of exchange with A.— 559,
576, 577, 578, 579, 580, 581,
582, 583, 584

— private ownership of land has
been imported by Europeans to
A.— 616

Also see: India, China
Australia— 501, 515, 578, 591
Average profit — 142, 153, 156, 157,
158, 159, 167, 169, 172, 173,
174, 180, 195, 197, 198, 209

Balance of payments and the trade
balance— 451, 491, 511, 512, 590
Bank

—and loaning capital— 428
— and loaning money — 428, 429
—gold reserve and the banking
reserve— 433, 434, 463, 468, 469
— and issue of notes — 433
— hank capital — 463, 464, 465,
466, 467, 468

— bank deposits, their double role
—469, 470, 471

— formation of bank assets — 541,
542, 606

— the Bank of Amsterdam — 602
— the Bank of Hamburg — 602
— English Bank of Credit— 603
— Credit mohilier — 605
Also see: Bank of England

Bank Act of 1844— 431, 554, 555,
556, 558, 559, 562
Bank deposits — 469, 470
Banking system and its historical
significance — 607, 608
Banker — 406, 506, 540, 541
Bank-note

— its definition— 404, 444
— circulation of bank-notes and
the industrial cycle — 458, 526,
527, 528, 529

— law of the circulation of — 522
— circulation of notes of the Bank
of England— 522, 523, 524, 525,
526, 527

— number of circulating bank¬
notes and the turnover — 522,
523, 524, 525, 526
— issue of bank-notes and metal
reserve — 525, 526
— and reserve fund — 528, 529
— and advance of capital — 538,
539

—and circulation of bills — 538,
539, 540

Bank of England

— its securities — 450, 451, 454,
456, 457

— circulation of its notes— 451,
454, 456

—and demand for gold— 451, 452,
453, 456, 459

— gold reserve in the Bank of
England — 452, 453, 454
— accommodations by — 454, 456,
458

— reserve fund of — 472, 473, 474,
514, 537

— its rate of interest in 1844-45 —
512, 513

— inflow and outflow of notes in —
529

— the largest capital power in Lon¬
don — 540, 541, 542, 543
— its profits for the period from
1797 to 1817—543, 544
— and the Bank Act of 1844 —
553, 554

—power of the Bank of England
over commerce and industry — •
606

Big landowner

— and the farmer — 618, 619, 620,
621, 625, 626, 627

SUBJECT INDEX

929

— enrichment o( the landlord in
the course of economic devel¬
opment — 619, 620
— and the Corn Laws in England
-626, 627

— appropriates part of surplus-
value — 638

— vitality of the class of big land¬
lords — 725

—role of big landlords in capital¬
ist mode of production— 820,
821

Bill of exchange

— its definition — 401
— discounting bills — 425, 427, 484,
485

— discounting bills and borrowing
capital — 426, 427
— speculative bill— 429
— and swindling — 484, 487, 490,
491

Buying and selling — 181, 195, 282,
289, 294, 342, 343, 345, 346, 347,
369, 428, 429

Capital

— movement of — 25, 48
— general formula of — 41
— magnitude of the total capital-
value and the magnitude of
surplus-value — 45, 46, 47
— technical composition of — 45, 46
— organic composition of capital
in industry — 75, 76
—tie-up of— 110, 111, 113, 114,
115, 116

— change of value of capital —

110, 111

— release of capital — 110, 114
— influence of the change in the
magnitude of capital on the
rate of profit — 139, 140, 152,
153

— as a social power — 194, 263, 264
—depreciation of — 236, 249, 252,
254, 255

— definition of — 245, 246
— absolute over-production of —
251, 252, 254, 255, 256
— plethora of — 251, 256
— increasing minimum of capital
required for the operation of

an industrial establishment with
the development of capitalist
production — 250, 262
— circuit of — 254, 255
— exports of capital in productive
and money-form — 256, 576, 577,
579, 580, 581

— merchant's capital invested in
the purchase and payment of
the means of circulation — 287
— criticism of theory of the origin
of capital from savings and ab¬
stention of the capitalist — 439
— social character of capital is pro¬
moted through the development
of the credit and banking sys¬
tem — 606

— as the production relation —
814, 815

— as the historically determined
social form — 815, 816
— fetishism of — 823, 824, 825, 826
Capitalist

— his illusion regarding the origin
of surplus-value and profit — 38,
41, 42, 44, 47, 138, 139, 210
— and production of a commodity
—41, 879, 880

— and the working class — 41, 197,
198, 380

— and advanced capital — 41, 42
— trustee of bourgeois society who
pockets the fruits of social pro¬
duction — 266
— industrial — 370, 371
— money-capitalist — 370,371, 372,
373, 374, 375, 510, 511
— is not needed for the production
process — 386, 387
— personified capital— 824
Capitalist mode of production
— as a synthesis of the processes
of production and circulation —
26, 41, 826, 827
— its distinction from the mode
of production based on slavery
—30

—mystification of — 39, 41, 42, 45,
48, 826, 827, 828, 830, 831, 861,
866, 867, 868, 869
— production relations under — 45,
391, 660, 817, 818, 819, 823,
824, 825, 826, 827, 828, 830,
831, 871, 872, 878

930

SUBJECT INDEX

— and economy of constant capi¬
tal— 84, 85

— and development of the pro¬
ductive power of labour — 85,

257, 258, 259, 266

— internal contradictions of— 86,
120, 245, 249, 250, 256, 257,

258, 263, 264, 266, 285, 286,
287, 573, 574

— squanderer of physical and spi¬
ritual powers of human, beings
—86, 87, 88

— and social character of produc¬
tion— 88, 89, 192, 266, 573,
574

— as immediately preceding the
socialist mode of production —
88, 437

— and the world-market — 110, 266
— social control and regulation
of production are irreconcilable
with — 119, 120

— and mass production of com¬
modities — 180, 181, 182
— classes under capitalist mode
of production — 195, 865, 866
— historical premises of — 196, 594,
595, 615, 616, 617
— and the process of accumulation
—217, 218, 219, 265, 266
— and relative over-population —
218, 222, 223, 236
— production of surplus-value and
profit as purpose of — 241, 242,
243, 244, 245, 251, 256, 257,
877

— historical character of — 242,
257, 258, 259, 263, 620, 621,
814, 815, 880

— productive forces of the capital¬
ist mode of production — 242,

249, 257, 263, 440, 884

— barriers of production under —

250, 257, 258, 263, 507

— disproportion of the individual
branches of production under —
256

— relatively limited market under
—437

— and agriculture — 616, 617, 650,
677, 4>78, 801, 802, 810, 811,
812

— and impoverishment of the di¬
rect producers — 618

—and the reduction of the agri¬
cultural population as compared
with the non-agricultural — 637
— leads to the separation of small
industry and manufacture from
agriculture — 819, 820
— and the price of land — 810, 811,
812, 813

— and large landed property — 811,
812, 813, 820

— and pre-capitalist production
relations — 831

— and reproduction of production
relations — 871, 872, 879
Capitalist reproduction

— replacement of constant capi¬
tal— 835, 836
— its conditions — 188
— two departments of the social
capital — 836, 837
— exchange between two depart¬
ments — 837, 838

— scheme of simple reproduction
—838

— reproduction of capitalist pro¬
duction relations— 839
—and advanced capital— 838, 839
— and revenues — 839
Cartels — 120, 437, 438
Centralisation of capital — see Con¬
centration
China

— pre-capitalist mode of produc¬
tion in C. — 333

— imports of European and Amer¬
ican goods to C. — 333, 334,
407, 569

— English opium trade in C. —
407, 551, 552, 579
Circulation

— seeming derivation of surplus-
value from circulation — 39, 43,
138, 827

— time of circulation — 43, 71, 80,
279, 280, 302, 827
— as a phase of the process of
reproduction — 279, 289, 826,

827

— and the value of commodities —
279

Circulating capital

— and the cost-price — 32, 33, 34
— money-form of the circulating
capital — 74, 75

SUBJECT INDEX

931

— and value of the commodity-
product — 108

— and development of the produc¬
tive forces of labour — 259
— loan of — 343, 344
Classical bourgeois political economy
— Ricardo on the correlation of
the prices of production and
values of commodities — 179, 180
— Ricardo on the ground-rent—
183, 649, 650, 679, 681, 757, 771
—Ricardo on the influence of for¬
eign trade on the general rate
of profit — 237, 238
— Ricardo on the rate of profit —
241, 242, 243

— Newman on the correlation of
commerce and industry — 279
— Ricardo and Smith on industrial
capital — 324

— Ricardo and Smith on mer¬
chant’s capital — 325
— Tooke on interest, credit and
money— 370, 371, 401, 402, 442,
443, 444, 445, 446
— Smith on manager’s salary — 383
— Smith on the role of capital in
money-lending — 470
— Ricardo’s theory on the value
of money — 546, 547, 548
— Smith on ground-rent — 615 767,
768, 771, 773, 774, 775, 787
— treats the capitalist mode of
production as an eternal cate¬
gory — 615

— Petty on ground-rent — 783, 784
— its merits — 830, 831
— its limitations — 831, 836
— criticism of Smith’s dogma —
840, 841, 842

— Ricardo and Smith’s dogma —
840, 841
Coin — 444

Colonial system — 328, 332, 333, 591,
592, 797, 908, 909
Co lonies

—high rate of profit in— 150, 151,
237, 238, 239

— role of the commercial capital
in— 330, 331

— profit on capital invested in —
582, 591

— lack of private ownership of land
in colonies — 616, 735, 756, 757

— differential rent in — 650,677,678
— exports of grain from colonies
at low prices — 670, 671
— difference of the modern colo¬
nies from those of ancient times
—670, 671

— agricultural — 755, 756
— seizure and exploitation of col¬
onies by the European powers
at the end of the 19th century —
909, 910
Also see: India
Commerce

— foreign — 237, 238
— its size — 325

— and the development of produc¬
tion— 326, 330, 331, 332, 333,
335, 336

— carrying trade — 328
— role of the revolution of 16th
and 17th centuries in — 332
Commercial capital

— as a special function of capital
—267, 269, 270, 272, 288, 463
— two forms of — 267
— its movement — 269, 270, 271,
272, 273, 274

— as a form of the social division
of labour — 272

— as a portion of industrial la¬
bour — 274

— and the process of reproduction
—274, 275

— produces neither value nor
surplus- value — 281, 282
— as the oldest state of existence
of capital — 325, 326, 336
— its development stands in in¬
verse proportion to the general
economic development of so¬
ciety— 327, 328

— and commercial profit — 329, 330
— and a system of robbery — 331,
332

— its role in the transition from
feudalism to capitalism— 334,
335

Also see: Merchant’s capital
Commercial credit

— foundation of credit system-
479

— its tools — 479
— its circuit — 479, 480
— its limits — 480, 481

932

SUBJECT INDEX

— leads to an extension of indus¬
trial and commercial opera¬
tions — 481

— grows with increasing volume of
industrial capital — 481
— and the reproduction process —
481, 482, 487, 488
— promotes the metamorphosis of
commodities — 482
— and actual money credit— 484
— and interest— 512
— and circulation bills— 521, 522
Commercial labour — 297-300
Commercial prices — 306-308
Commercial profit
— sourde of — 281-285
— definition of — 286, 287, 301
— and the industrial profit — 286,
287

— source of merchant's income —
290

—limits determining commercial
profit— 306, 307
Commodity

— its origin — 177
— and money — 181
— as: the use-value — 184, 635, 636
— metamorphosis of — 325, 326
— conversion of agricultural prod¬
ucts into — 636-638
— as the unity of use-value and
exchange-value — 646, 647
Communist mode of production
— discipline under — 83
— social control and regulation
of production are possible only
under— 120, 188, 819, 820
— development of agriculture un¬
der— 121

— and labour productivity — 261,
819

— development of productive
forces inevitably leads to the es¬
tablishment of — 264, 439, 776
— stock capital as a transition
point to — 437, 438, 440
—and the co-operative factories
of the labourers — 440
— and abolition of landed prop¬
erty — 660, 775, 776
— and surplus-labour — 819, 820,
847, 876

— freedom and necessity under —
819, 820

— and shortening of the working-
day — 820

— distribution of the social prod¬
uct under — 847, 848, 875, 876
— regulation of labour-time and
the distribution of social labour
under — 850, 851
— wages under — 876
Community

— and evolution of products into
commodities — 177
—in India— 334, 726, 786, 791, 877
— in Russia — 725, 726
— in Poland and Rumania — 803
— communal society — 831
— characteristic of — 895
— the mark— 899, 901
Competition

— main law of — 37
— in the world-market — 120
— and the monopoly — 120, 193,
437, 438

— and the capitalist class — 194,
195, 252,253

— role of competition in the dis¬
tribution of social capital among
the various spheres of produc¬
tion — 173, 196
— among labourers — 175
— competition within branch of
production and between differ¬
ent branches of production — 173
— determining market- value — 184,
193

— brings out the social character
of production — 193
— mechanics of — 193, 225, 231,
253, 254, 255, 256, 264, 265
— role of competition in the for¬
mation of the average profit and
price of production — 195, 196,
208, 209, 210, 313
— fall of the rate of profit — 225,
226, 255, 256

— and over-production capital
—252, 253

— in European grain markets —
725, 726
Concentration

— of means of production — 79, 91,
265, 266

— of labourers — 82, 220
—of capital— 87, 220, 241, 246,
247, 250, 251, 263, 436, 593

SUBJECT INDEX

933

— and the centralisation of capi¬
tal— 241, 246, 439
— of commerce — 295
— of money-capital — 302
— of the credit system — 366
— of the national reservefiind — 453
— of payments — 515
Constant capital — 29, 52, 80, 84,
110, 116, 118, 119, 153, 235,
236, 852

Also see: Economy of the constant
capital

Consumer-power
— of society — 244
— of labourers — 483
— of non-productive classos — 491
Consumption

— contradiction between produc¬
tion and consumption — 186,
188, 244, 245, 256, 257
— productive consumption — 189
— and competition — 193
— is not the purpose of capitalist
production— 244, 256
— and production — 257
—and the turnover of merchant’s
capital — 303
— its limits— 482
—and cheapening of necessities
of life— 657

— volume of labourer’s consump¬
tion under capitalism and under
socialism — 876
Contradiction

— between private landownership
and rational agriculture — 121,
812

— between production and con
sumption — 186, 244, 245, 256,
257

— between productive forces and
production relations — 249, 250,
257, 263, 264, 884
— between the social character of
production and the private form
of appropriation — 265, 266, 440,
572, 573

Co-operative factory — 387, 388, 440
Corn Laws In England — 108, 327,
627, 656, 680, 725
Cost-price

— of the commodity— 26, 28, 29,
30, 32

— ca pita list — 26

— actual — 26

— and changes in the value of the
constant and variable capital —
29, 30

— and distinction between fixed
and circulating capital — 32, 33,
34, 47

— and value of commodity — 36.

37, 163, 164, 165, 168, 170, 171
— and price of commodity — 37
— Proudhon’s theory of— 39, 40
— component parts of — 44, 45
— and the distinction between
variable and constant capital —
153

— and intensification of labour —
232, 233

Costs of circulation — 282, 288, 289,
294, 295, 298, 301, 316, 435
Credit-banking system — 544, 572, 592
Creditor

— and the debtor-state — 464, 465
— division of profit between lender
and borrower — 513
Credit system

— and money as a means of
payment— 369, 400
—functions of— 402
— forms of commercial credit-

403

— forms of banker's credit— 403,

404

— and industrial cycle in Eng¬
land— 406, 407, 408, 409, 410,
414, 431, 432

— swindling through credit — 424
— role of credit in the equalisation
of the rate of profit — 435
— and economy in costs of cir¬
culation — 435, 436, 515
— and the formation of stock
companies — 436, 437, 438, 439,
440

— places social property at dis¬
posal of individual capitalist —
438, 439

— and wholesale commerce — 439
— and centralisation of capitals —
439

— and sharpening of contradic¬
tions in capitalist society —
440, 441

— dual character of— 441, 605
606, 607

934

SUBJECT INDEX

— and the period of prosperity —
446

— and the crisis — 458, 490
— as the social form of wealth —
572, 573

Currency principle — 417, 418, 452,
546, 548, 551, 552, 553, 559

Demand and supply

— and the market-value — 178, 179,
180, 181, 185-192
— demand for means of produc¬
tion on the part of capitalists —
188, 189

— and production — 188, 193, 195
— demand for means of subsistence
on the part of labourers — 188,
189

— productive demand — 189
— social need for commodities —
189

— their inconsistency — 189-191
— and market-prices — 191
— their proportion recapitulates
the relation of use-value to
exchange- value— 193
— and the division of the total
revenue of society— 195
— and the commodity-capital —
514-515

Differential ground-rent
— its formation — 639-648, 745,

746, 752, 753

— and natural forces — 644-646
— Ricardo on — 649, 650, 679
— on the worst cultivated soil —
738-744

— and rent as interest on capital
incorporated in the soil— 745,
746

—its source — 745, 746
—its definition — 822

Differential rent I
— and natural fertility of soil —
650, 651-671, 673, 822
— and the location of land sites —
650, 651

— its change depends on the change
in prices— 653-668
— ana the marketr value— 660, 661
— and the rate of rent — 661,
665-667

— and the rental — 665-667

— and the surplus product — 679

Differential rent II

— and intensive cultivation — 675,

676, 680

— and differential rent I — 676,

677, 678

— and the difference in distribu¬
tion of capital among tenants —
677

— and the formation of surplus-
profit— 677-682

— its distinction from differential
rent 1—682-684

— when price of production is

constant— 685-692, 715, 716
— when price of production is

declining— 693-709, 715, 716,
720

— when price of production is

rising— 710-714, 716, 719-721
— its growth with the develop¬
ment of capitalist agriculture —
724, 725

Discounting — 468

Division of labour — 187, 266, 275,
294, 295. 296, 299, 316, 317,
635, 636, 637

Economic law

— distortion of the economic law
in the conceptions of the manu¬
facturer, merchant, and bank¬
er— 45, 120-138, 139, 225-226,
312, 313, 314, 380, 382, 383, 389-
390

— under capitalist production, the
general law acts as the prevail¬
ing tendency only — 161, 175,
189, 234, 235, 238, 880

Economic crisis

— money panic in 1847 — 125
— as monetary and forcibily solu¬
tion of contradictions of the
capitalist mode of production —
248, 249

— and the redundant labouring
population — 263

— main cause of economic crisis
is the contradiction between
the development of productive
forces and limited consumption
of working people under capi¬
talism — 265, 482

SUBJECT INDEX

935

— breaks out in the sphere of
wholesale trade and hanking —
304, 305

— of 1847 in England — 407, 408,
409, 410, 411, 412, 414, 415,
416, 417, 418, 420, 486, 487, 493
— and superabundance of pro¬
ductive capital — 483, 491
—and flooding of the market
with commodities — 487, 491
— and sudden stoppage of credit —
490

— and money crisis — 490, 493, 516
—of 1857 in the U.S.A.— 492
— development of crisis into a
general crisis — 492, 493
— exports of precious metal in
time of — 492

Also see: Induitrial cycle. Over¬
production of capital
Economy

— of constant capital and the rate
of profit— 60, 61, 373
— of constant capital and the
increase of labour productiv¬
ity — 78, 80, 81

— of production conditions — 78, 79
— of constant capital and the
social character of labour—
79, 80

— as the result of continuous im¬
provements of machinery — 80
— in the use of constant capital —
82, 87

— in means of production — 83
— in the generation and transmis¬
sion of power, and in build¬
ings — 96-101

— in the utilisation of waste
products — 101-103
— in the application of constant
capital through inventions— 104
— of payments — 508
— of means of circulation — 520
England

— Corn Laws in E — 626, 627,
628, 680, 681, 725
— protective tariff system — 107
— cotton industry in E. — 107,
122, 123, 127, 128, 129
— woollen industry in E. — 121,
122, 123

— cotton crisis of 1861-65 — 124,
125, 126, 127, 128

— position in cotton operatives in
E.— 130, 131, 132, 133, 134,
135, 136, 137

— settlement laws in E. — 175
— working day in E. — 215
— commercial estate — 327, 328
— foreign trade of E. — 333, 582,
583

— accumulation of capital in 1792-
1815—423, 424

— monopoly of E. in industry —
490

—industrial cycle of E. — 500-501
— English exports to Ireland since
1824 until 1863—500
— England's balance of trade —

590, 592

— usage of land in E. — 618, 619,
624, 767

— farm-labourers' wages in E. —
627, 628, 629, 630
— grain prices in E. — 657
— classic land of capitalism in
agriculture — 677

— classic land of the capitalist
mode of production — 677, 885
— Enclosure Bills — 770
— classes in E. — 885
Europe

—rate of profit in European coun¬
tries is lower than in Asian
countries — 150, 151
— movement of gold reserve in
Europe in the 19th century —
565-567, 569

— influence of grain imports from
Russia, India and America on
West European agriculture —
725, 726

Exchange of commodltlci

— at their values — 174, 175, 176,
177, 188, 895, 896, 898, 900, 901
— as products of capitals — 175;
176, 177

— between communities — 177, 895
Exploitation of labour

— in different spheres of produc¬
tion — 142, 143

— national differences in the de¬
gree of— 143, 238
— of the working class by the
sum total of capital — 197
— is the appropriation of unpaid
labour — 197, 385

936

SUBJECT INDEX

— the degree of — 197, 232-235,
243, 247, 248, 255
— and the intensification of la¬
bour— 232, 233

— and the prolongation of the
working-day— 233
— in colonies — 238
— conditions of — 244-251
— means of — 258
Also see: Rate of surplus- labour

Exports of capital — 255, 256, 478,
575, 576, 580, 581, 590

Expropriation

— as the starting-point and pur¬
pose of the capitalist mooe of
production — 220, 250, 439, 616,
799, 821, 878, 879
— and the formation of stock
companies — 440

Farmer, farming

— and flax manufacture — 102
— and capitalist farming — 614,
617, 750, 798, 799, 800
— capital incorporated in the land
of— 619, 620, 621
— contract period — 619, 621
— and the rent — 620, 621, 623,
624

— and the landowner — 620, 621,
623, 624, 748-750, 799, 801
— in Ireland — 625
— in England — 625-628
— and the farm-labourers' wages —
628

— and the farmer’s surplus-profit
—674, 675, 676, 677, 706,

752, 755
— in Sicily — 787

— and agricultural labourers — 796
— price of agricultural products —
801

Fetishism

— of interest-bearing capital — 388-
397

— of interest— 392
— of profit— 392
— commercial— 516
— of capital — 823-826

Feudalism

— characteristic of the feudal mode
of production — 325-326, 330,
332, 334

— and the feudal lord — 326, 330,
596, 790

— transition from the feudal mode
of production to the capitalist
mode of production— 332, 334-
336

— and usury — 595, 596
— and landed property — 615-616
— and non-economic compulsion —
787

— relations between country-side
and town under feudalism —
800, 801

Financial aristocracy — 327, 438,

510, 511, 544
Fixed capital

— and the cost-price — 32, 33, 34,
35, 36

—wear of— 33, 81, 108, 112, 114,
227, 265, 781

— only distinction which im¬
presses itself upon the capitalist
is that of fixed and circulating
capital — 74

— portion of constant capital —
77, 80, 119, 213
— reproduction of — 78
— and value of the commodity-
product — 81, 108
— changes in its value with the
development of the productiv¬
ity of labour — 259, 260
— advance of — 343, 344
— in agriculture — 618
Foreign trade and capitalist mode
of production — 237, 238, 324
France

— silk industry in F. — 334
—and the- Panama swindle— 439
— increase of the rental in F. —
629

— improvement of land fertility
in F.— 769

— peasant proprietorship of land
parcels in F. — 806

General law of capitalist accumula¬
tion-— 222

General or average rate of profit
— its formation — 154-168, 174
— its definition — 157 158, 173,

367

SUBJECT INDEX

937

— factors determining the general
rate of profit — 162, 166, 168,
169

— its amount and the value of
the commodities — 166
— and the degree of labour ex¬
ploitation — 166, 197
— is revealed as a tendency —
366

Also see: Law of the tendency of
the rate of profit to fall

Cold

— as universal money — 317, 318
— demand for — 431, 432, 433,
457, 459, 460

—sources of production — 565
— as the expression of the social
character of wealth — 573
Also see: Precious metal
Gross profit

— breaks up into interest and
profit of enterprise — 372, 373,
374, 375, 376, 377
— and the national income — 541
— and interest — 588, 589
Ground-rent

— rate of — 242, 776
— as the surplus over the average
profit— 243, 783, 800, 801, 802
—characteristics of ground-rent—
618, 624, 625, 633, 634
— its distinction from interest on
capital incorporated in the
land— 618, 624

— as the obstacle to a rational
development of agriculture — 620
— and the rate of interest — 623
— and farm-labourers’ wages — 627-
630

— confusion of surplus-product
with ground-rent— 632
— and rent in kind — 634
— its amount is the result of
development of social labour-
637, 639

— and money-rent — 637, 797-798,
802

— is a part of surplus-value — 638
— cause of the increase in the
price of products — 761, 762
— monopoly ground-rent — 762,

832, 833

— building site rent — 773-775
— mining rent — 773, 775

— and the amortisation of capi¬
tal— 774

— and production relations — 776
— and the price of land — 776-781
— and the price of the agricul¬
tural product — 776, 777, 788-
790, 810

— growth of its mass — 777
— its seeming origin from the
soil — 788

— rent in kind — 787-789, 794-797
— labour rent — 790-794
— and the state as landowner — 791
— and ownership of land parcels —
804, 805, 806

Income

— of a capitalist — 75, 76, 820,
821, 822, 823, 824, 825, 826,
827, 828, 830

— of a labourer — 75, 76, 820-831
— as a fund for accumulation and
as a fund for consumption —
197, 198

— result of actual accumulation —
503

—of a landowner— 820-831
—gross— 840, 841
—net— 840, 841

—Say on the net and gross in¬
come — 841, 842

Independent peasant — 226, 335, 650,
676, 799, 804, 806, 875, 895,
899, 905

Also see: Small landowner

India

— as the centre of the crises of
1825-57—71

— pre-capitalist mode of produc¬
tion in I. — 216, 332, 333, 334,
726, 787, 791, 877
— peasant in I. — 216, 726
— English rule in I. — 332, 333,
334, 581, 592, 796
— swindling in Anglo-Indian trade
—408, 409, 411, 420
— export of capital from England
to I.— 551, 576, 577, 578,

579

— England does not pay any
equivalent for imports from
I.— 582

938

SUBJECT INDEX

Industrial cycle

— in Britain — 406, 500, 501
— in times of prosperity — 446,
447, 488, 489

— and the crisis — 448, 489, 490
— and the depression — 485, 486,
487, 489, 490, 494, 495
— change in the time of cycle
with the development of in¬
dustry — 489, 490

Also see: Economic crises. Over¬
production of capital
Interest

— its definition — 345-350, 352, 353
— as the price of capital — 353,
354

— and competition — 355, 356, 362,
363, 370

— and profit — 358, 359, 360
— and the average rate of profit —
360, 511, 512

— as the fruit of owning capital —

374, 375,

— its nature — 376, 377
— and wage-labourers— 382
— and the relationship between
two capitalists — 382
— its movement — 588
— usurers' interest — 595, 596, 597
— in the Middle Ages — 597, 610,
611, 612

Also see: Rate of interest

Interest-bearing capital

— its movement — 340, 341, 342
— its distinction from the com¬
modity-capital — 342, 344, 345,
346, 347, 348, 349, 350
— its specific character — 343, 344,
345, 346, 347, 464
— as a specific form of money¬
dealing capital — 344, 353, 609
— and the process of production —
364

— and the functioning capital —
372

— historically precedes the capital¬
ist mode of production — 376
— as a property and as a function —

375, 378, 379, 380

— its general formula — 391, 392
— and the development of labour
productivity — 397, 398
— its fetishism — 397, 829

— and usury — 599, 600, 601, 602,
603

— and capitalist mode of produc¬
tion — 606, 607

Also see: Loan capital, Usurer’s
capital

Ireland— 102, 119, 126, 127, 525,
625

Italy— 19, 335, 787, 798, 801, 901,
902, 904

Japan — 101

Labour

— purposive nature of labour — 28
— social combination of — 79, 80,
81

— universal — 104
— co-operative — 1 04
— intensity of — 197
— tendency for the rate of labour
exploitation to rise under capi¬
talism — 239

— agricultural and industrial —
632, 633

— necessary and surplus labour of
all society — 632, 633, 634, 635,
636

— natural productivity of agri¬
cultural labour — 632, 766
— appears as the productiveness
of capital — 641

— and the monopolisable force of
Nature — 645

— Nature’s productive power of
labour — 745
— enforced labour — 793
— forced character of labour under
capitalism — 819

— as the general agent in pro¬
duction — 823

—labour-process as process be¬
tween man and Nature — 825
Also see: Productive power of
social labour. Exploitation of
labour
Labourer

— and the social character of his
labour — 84

SUBJECT INDEX

939

— and the economy in his labour
conditions — 86, 87, 88
— labour conditions of the labourer
in the factory — 88-96
— exploitation of — 142, 143, 196,

197, 232, 233, 235, 238, 243,
244, 247, 248, 255, 256, 257, 385

— and the rate of profit — 177, 180
— living conditions of — 188
— and the capitalist — 196, 197,

198, 380

— commercial worker — 291, 292,
299, 300

— agricultural labourer — 618, 799
— as the seller of his individual
labour-power — 821
Labour-power

— use-value of— 29, 30, 351, 385,
392

— change of its value — 114, 115,
206

— its absolute increase with the
development of capitalism — 220
— depression of wages below the
value of — 235, 254
— and the development of pro¬
ductive force of labour— 247
—determination of the value of
labour-power— 292, 466, 740,
821, 822, 858
— as a commodity — 351
— is potentially capital — 355
— in the slave system — 466
— and profit — 513
— and rate of interest — 513
Labour-lime — 635, 644, 851
Land

— and capital incorporated in it —
618, 619

— use of land for building pur¬
poses— 621

— nationalisation of land under
capitalism— 621, 622, 660
— value and price— 622, 623, 624,
633, 647, 669, 779, 780
— sale and purchase of — 636
— monopoly of — 645
— natural fertility of— 650, 651,
668, 669, 670, 743, 745, 746,
769, 780, 781, 812, 813, 815
— extending cultivated land — 668,
669

— its exploitation under capitalist
mode of production — 811, 812

— material element of every proc¬
ess of production — 816
— does not create value — 816, 817
Landlord, landlordism — see Large
landed property, Big landowner
Large landed property

— its pre-capitalist forms — 614,
615, 616, 624

— under capitalist mode of pro¬
duction — 614, 615, 616, 617,
618, 619, 620, 621, 622, 810,

811, 812, 815, 820, 821

— criticism of Hegel’s views con¬
cerning — 615, 616
— is realised economically in the
form of ground-rent — 618, 619,
620, 621

— and the surplus-profit — 647
— limitations to the investment of
capital in the land — 745, 746,
763

— does not create rent — 755, 756,
757

— lays obstacles to a rational
agriculture — 812, 813
— its role in the development of
capitalist mode of production-

812, 813, 820, 821

— fetishist character of — 823, 824,
825

Lau> of value — 10-21, 177, 179, 180,
635, 636, 644, 880, 891, 892,
893, 894, 895, 896, 897, 899
Lease

— term of — 619, 620, 675
— and the interest on capital
incorporated in the land — 619,
620

— share cropping — 671
— and fixation of rent — 675
— lease money — 624, 625, 755
— and wages of the agricultural
labourers — 627, 628, 755, 756
— and rent — 755
Loan, its definition — 471
Loan capital

— its function in the process of
circulation — 342, 343
— as a commodity of a special
kind— 341, 342, 343, 344, 350,
353, 354, 355, 366, 367
— its use- value — 351, 352, 353
— sources of its origin — 402
— the mass of the loan capital is

940

SUBJECT INDEX

different from the mass of
circulating money — 499, 500
— fictitious character of the loan
capital — 508, 509
— and the crisis — 512, 513
— and the period of renewed
activity — 513

— has a movement different from
industrial capital — 585, 586
Also see: Interest-bearing capital

Machinery

— reproduction of the value of —
78, 81. 108, 109, 113, 117,
264, 265

— moral depreciation of — 113
— introduction of new machines
under capitalism — 113, 262
— relative over-production of — 119
— and labour productivity — 260
Market-value — 178, 179, 180, 181-
186, 190, 191. 192
Means of production

— capitalist as owner of — 41
— and surplus-value — 45, 46
—economy in— 83
— cheapening of — 84
—as means of exploiting labour— 85
— as social property — 439
— as capital — 814, 815, 824, 881
Medium of circulation
— and credit — 442
— and the industrial cycle — 526,
527

— and the rate of interest — 529,
530

— and foreign trade — 531-533
Mercantilism — 337, 784, 785
Merchant’s capital
— as the independent part of the
industrial capital — 275, 290,

291, 308, 310, 324
— role of merchant’s capital in
capitalist reproduction — 275,

291, 310, 324, 325, 326
— criticism of bourgeois econom¬
ist’s views on the nature of —
279

— and the turnover — 275, 287,
302, 303, 304, 305, 308, 309,
310, 311

— and the formation of average
pro fit— 286, 308, 309

— and the commercial profit —
287, 296, 309

— under pre-capitalist modes of
production— 310

— the puro form of merchant’s
capital in wholesale trade — 288,
289

— forms of the merchant’s capi¬
tal— 323

Also see: Money-dealing capital ,
Commercial capital
Money

— as a means of circulation —
320, 321, 338, 339, 530, 531
— conversion of money into capi¬
tal— 338, 339

— money-market — 366, 367, 368,
511, 529

— as a form of capital — 419, 443,
445, 448

— as credit-money — 435, 515, 516,
536

— as revenue — 442, 445, 448
— quantity of circulating money —
445, 446

— and reproduction process — 446,
447

— in a period of crisis — 448
—as absolute form of value —
459, 515, 516, 863
— as the universal equivalent —
515

— and exchange among various
component parts of the social
capital — 530, 531
— as the expression of the social
character of wealth — 573
— as the expression of the social
character of labour — 607
Money-capital

— and the industrial capitalist's
commodity-capital — 287, 463
— and development of industry —
368

— its concentration with the de¬
velopment of capitalist mode of
production — 387 -388
— demand for — 419, 420, 423, 433,
515

— and value of commodity-capital
and productive capital — 421
Money-dealing capital

— as an individualised part of
industrial capital — 315, 316, 317

SUBJECT INDEX

941

— its metamorphosis — 315, 316
— its movement — 315, 316, 317
— its origin — 317, 318, 319, 320,
321, 322

— and formation of a hoard — 319,
320, 321, 329, 330
— and commercial capital — 321,
322

— profit of — 322
Also see: Merchant’s capital
Money-market — 366, 367, 511
Monopoly

— in industry — 194, 196, 199, 225,
238, 306, 313, 437, 438
— of landed property — 615, 616,
617, 624, 634, 638, 751, 753,
757, 762, 763, 773, 784, 860-861

Natural economy — 786, 795, 796

Organic structure of capital

— technical structure is the basis
of— 45, 46, 145, 765
— its definition— 145, 146, 154,
753, 762, 763

— and the rate of profit — 155
—capital of higher composition-
164, 759

— capital of lower composition-
164, 759

— capital of average composition
—164, 759

— and the development of the
productivity of labour— 213,
214, 216

— in the extractive industry — 759
— in the mining industry — 759
— in agriculture — 760, 764, 765,
766, 767

— in industry — 765, 766
Over-production of capital
— relative — 186, 256, 257
— is over-production of commodi¬
ties— 251, 256, 257
— absolute — 251, 252, 255
— is over-accumulation of capital
—251

— depreciation of capital — 252,
254, 255

— and the function of moqey as
a medium of payment — 254

— and relative over-production —
219, 254, 255, 256
— is over-production of the means
of production — 255, 257
— credit system as the main lever
of — 440

Also see: Economic crisis, Industri¬
al cycle

Panama swindle — 439
Peasant proprietorship of land par¬
cels— 803, 804, 806, 807, 808, 809,
810, 811, 812, 813
Also see: Small landed property
Petty-bourgeois political economy —
— Proudhon on loan-capital — 345,
346, 347

— Proudhon on the perpetuation
of commodity-production with¬
out money — 607, 608
Physiocrats

— their teaching — 604, 756, 757,
784, 785, 786

— Turgot on ground-rent and in¬
terest — 622
Population

—growth of the working popula¬
tion — 219, 249

— growth of population and pov¬
erty — 219

— excessive population — 219, 245,
249

— and productive power of la¬
bour— 219, 224, 241, 266
— reduction of the agricultural
population with the development
of capitalism — 637
— and means of existence — 671
— and the development of agri¬
culture — 769, 770
Precious metal

— movement of — 320, 321, 564,
565, 567, 568, 569, 570
— determination of its reserve
fund — 566, 567, 568
— magnitude of a hoard of a
country— 568

— export and import of — 569, 570,
571, 585

— amount of precious metals under
the credit system — 571, 572,
605

942

SUBJECT INDEX

— as expression of the social char¬
acter of wealth — 573
Also see: Gold , Silver

Price

— and the cost-price — 38
— monopoly price — 167, 757, 762,
765, 767, 771, 775, 832, 833,
850, 861

—average market-price— 190, 191
— its definition — 353, 354
— market-price — 190, 191, 355
— causes effecting the increase in
prices — 587

—and the rate of interest — 586,
587, 588

Price of land

— and the monopoly price — 775,
810

— and the price of the agricultural
product — 777, 779, 810
— its definition — 808, 809
— its role in the case of small-
scale agriculture — 807, 808, 809,
812

— and the rate of interest — 800,
801

— and the form of private land-
ownership — 813

Price of product

— its definition — 157, 158, 165,
284, 285

— as the converted form of value
—159, 160, 163, 164, 173, 174,
179, 194, 196, 838, 839
— and the cost-price — 165
— conditions affecting changes of
its amount — 165, 206, 207, 208
— and the value of commodities —
173, 177, 207, 208, 209, 640,
641, 755, 757

— centre of gravitation of market-
prices — 179

— its definition by bourgeois econ¬
omists— 198

— effects of wage fluctuations on
prices of production— 200, 201,
202, 203

— and the value of agricultural
product— 760, 762, 763, 764,
765

— and the price of agricultural
products— 764, 765
Also see: Law of value

Private landed property — see Large
landed property
Private property

— and the capitalist mode of pro¬
duction— 266, 436, 605
— and communism- -775, 776
Product

— and demand — 656, 657
—value of the annual product —
821, 822, 838, 839, 844, 845,
852, 853, 866, 867
— gross product — 836
Also see: Surplus-value
Productive forces — 242, 249, 250,
257, 263, 440, 884

Productive power of social labour
— as the productive power of cap¬
ital— 45, 784

— and saving of constant capital —
77, 78, 80, 81, 82
— and the rate of profit — 85, 86,
262, 263, 264

— and the production of machines —
108, 260, 261

— and the increase of the organic
composition of capital — 162, 213
214, 217, 249, 758. 759
— degree of its development — 163
— and value of the commodity —
170, 171, 190, 191, 260, 261,
264, 265, 641, 642
— its significance for capitalist so¬
ciety — 197, 198

— and profit — 197, 198, 199, 230,
231, 237, 238

— law of the tendency of the rate
of profit to fall — 214, 215, 216
— and accumulation— 218, 219,220
— and wages — 220, 856
— and population — 223, 224, 248,
249, 250, 266

— price of the individual com¬
modity— 226, 227, 230, 231 264
— and expansion of production —
247

—and employment of labour-pow¬
er— 247

—and the mass of use-values— 248,
265

— and capital — 248, 249
— growth of the productive power
of social labour and the capi¬
talist mode of production — 259
260, 261, 262, 263, 264

SUBJECT INDEX

943

— and the disproportion in its de¬
velopment — 259

— and circulating capital — 260
— and fixed capital — 260
— its increase— 260
— and the communist mode of
production — 261, 819, 820, 821
— and the relative decrease of the
number of wage-workers — 263
— and competition — 264, 265
— and the wear and tear of fixed
capital — 265

— and the material elements of
capital — 265

— Nature's productive power of
labour — 745

— and the wealth of society — 819
Production relations

— capitalist — 45, 84, 85, 391, 660-
661, 814, 815, 817, 8l8, 875
— contradiction between the pro¬
ductive forces and — 249, 250,

257, 258, 263, 440, 884
— in the slave system — 776, 831,
881

—in communist society — 776
— correspondence of the produc¬
tion relations to the character
of productive forces — 793
— under the exploiting modes of
production— 793
— reproduction of — 793
Profit

— its definition — 35, 36, 37, 42,
43, 44, 45, 46, 47, 48
— Torrens’s theory of — 38, 39
— Ramsay's theory of — 39
— Malthus's theory of — 39
— and surplus-value — 47, 49, 166,
168, 173, 174, 180
— and the prolongation of the
working-day — 77

— average profit — 142, 153, 156,
157, 158, 159, 167, 169, 171,
173, 174, 180, 195, 197, 210, 211
—and capital — 152, 153, 169
— source of — 167, 168, 169, 211
— capitalists' conception ol the
origin of— 167, 169, 211, 230,
231

— bourgeois political economy on
—168, 214

— industrial — 283,' 296
— money-dealers’ — 322

— in the stock company — 436
— as the appropriation of nation¬
al labour — 541

— average profit as the regulator
of capitalist production — 783
— limits of profit — 860, 861
Also see: Surplus-value
Profit of enterprise

— and the rate of interest — 372,
373, 374

— and the interest — 373, 378, 379,
380, 381

— as the capitalist conceives it —
380, 381, 382, 383, 388
— and the wages of management —
387, 388, 389
Protective tariffs — 437

Rate of exchange

— barometer for the international
movement of money metals —
320, 574, 575, 576
— and crisis — 568, 569
— of England with Asia — 576, 577,
584

—and export of capital— 576, 577,
580, 581, 582, 583, 584
—and the interest rate— 580, 581,
589, 590, 591

— and conditions which determine
its changes — 592, 593
Rate of interest

— and the average rate of profit —
359, 360, 362, 364, 365
— and the industrial cycle — 360-
372

— its tendency to fall — 361
— average rate of interest — 363-365
— its volume — 364-368
— market rate of interest — 366
—in 1847—421
—in 1856—422

— and the rate of profit — 422, 423,
424

Rate of profit

— definition of — 42, 43, 45, 46,
47, 48, 113

— and the rate of surplus-value —
43, 47, 48, 50, 51, 68, 69, 138,
139, 140, 141, 166, 212
— and the rate of interest — 356,
357, 362

944

SUBJECT INDEX

—its measurement — 46
— and differences between fixed
and circulating capital— 47,
151, 152

— value of money — 50
— and the turnover of variable cap¬
ital — 50

— and labour productivity — 50,
51, 81

— and variable capital — 52, 53,
55, 147, 148

— and the turnover— 70, 71, 72,
73, 74, 75, 76

— and the time of production — 70,
71

— and the time of circulation— 71
— and the constant working-day —
77, 78

— and the prolongation of the
working-day — 77

— and the value of constant capi¬
tal— 80

— and quality of raw materials —
82

— and the adulteration of elements
of production — 83
— and economy in labourer’s liv¬
ing conditions — 86
— and fluctuations in the price
of raw materials — 105, 106, 107,
108, 111, 113
— and foreign trade — 107
— and the organic structure of
capital— 142, 143, 144, 145,

147, 148. 149, 150, 151, 152, 153
— comparison of national rates of
profit— 143, 150, 215, 216
— and the value of advanced cap¬
ital— 197

— its calculation by the elements
of the price of and individual
commodity — 227, 228, 229
— stimulus of capitalist produc¬
tion— 241, 242, 258, 259
— and its reduction — 246
— and formation of new capital¬
ist enterprises— 258
— Ricardo on — 259
— as the starting-point of the
historical development of cap¬
ital— 901, 902, 903
Rate o/ surplus- value
—definition of — 42, 49, 234
— and surplus-value — 43

— and the rate of profit— 43, 47,
48, 49-50, 68, 69, 138, 139,
140, 212

Also see: Exploitation of labour
Raw materials

— quality of raw materials and
the rate of profit — 82
— component part of the constant
capital — 106, 112
— influence of the price of raw
materials on the rate of profit
— 106, 108, 112, 138
— and the value of the product —
108, 112

— and the productive power of
social labour — 108
— component part of the circulat¬
ing capital— 108, 109
influence of changes in prices of
raw materials on the process of
reproduction — 109, 117-121
— available supplies of — 112
Relative over-population — 219, 222,
224, 245-249, 250, 251, 255, 256,
263, 265, 629
Reserve fund — 469
Russia

—foreign trade of R.— 127, 334,
726

— development of the capitalist
mode of production in R. — 334
—circulation of bank notes in R.
—524

— peasantry in R. — 726
S

Securities

— title of ownership — 477
— component parts of — 463, 464
— in the period of crisis — 467
— depreciation of — 467
— title to future production — 468
— their quotation on the stock
exchange — 477

— and the development of capital¬
ist production — 477, 478
Also see: Stock

Silver— 317, 320, 551, 552, 558, 565,
566, 567, 578, 592
Also see: Precious metal
Slavery, slave economy

— and the capitalist mode of pro¬
duction — 30, 340

SUBJECT INDEX

945

— and the conversion of products
into commodities — 177, 325
— role of commerce in the devel¬
opment of the slave economy —
331

— work, of supervision — 384, 385
— and the usurer's capital — 593,
594, 595

— spoliation of the soil by the
slave-owners in the United
States — 619

— and landed property — 634
— production relations in — 776,
831, 881

— and the slave's labour condi¬
tions — 790-791
— system of — 804
— price of slaves — 809
— antagonistic form of surplus-la¬
bour in the slave system — 819
Small landed property

— form of landed property for
small-scale operation — 614, 807
— causes of decay of small-scale
landed property — 807
— and the development of pro¬
ductive power of labour — 807
— and price of land— 808, 810, 811,
812

— illusions created by— 810
—expropriation of the small land¬
ed property as the basis of the
capitalist mode of production —
812

— and exploitation of land — 812,
813

Also see: Peasant proprietorship
of land parcels

Small landowner — 799, 802, 803,
804, 805, 806

Small producer, small production —
176, 177, 216, 333, 334, 335, 614,
690,790,791,792, 793,794,795,796,
798-799 , 807 , 810-811, 894 , 896
Socialism — see Communist mode of
production

Socialist revolution — 264, 440, 776
Society

— its wealth — 355, 440, 573, 820
— its economic and political struc¬
ture— 791-792, 818
State

— and import and export of pre¬
cious metal — 320

— as owner of the surplus- product
in pre-capitalist societies — 330
— national debt — 395, 396, 464,
465, 526

— government bonds — 403, 408,
457, 458, 467, 476, 477, 502,
809

— and differential rent — 661
— as a landowner — 791
Stock

— and gambling on the stock ex¬
change — 439

— and contradiction between the
social character of production
and individual appropriation —
439

— as a title of ownership, a fictiti¬
ous capital — 466, 467
— circulation and market-value of
—467, 468

— preferred and deferred stocks —
470

Stock capital

— and the general rate of profit —
240

— as capital of associated individ¬
uals — 436

—contradiction of — 436, 437, 438
— as a mere phase of transition
to a new form of production-
437, 438, 440
Stock company

— and falling of the general rate
of profit — -262, 437
— and the separation of the capital
function from the capital owner¬
ship in the process of reproduc¬
tion— 386, 387, 436, 437
— the separation of wages of
management from profits of
enterprise — 387, 388, 436
— profit in stock companies — 388,
436, 437

— and competition — 437, 438
— as the next high stage in devel¬
opment of capitalist produc¬
tion — 437, 909
— parasitic nature of — 438
— organisation of — 438
— United Alkai Trust — 438, 909
— development of stock company
during the second half of the
19 th century — 909
Stock exchange — 439, 510, 909

946

SUBJECT INDEX

Surplus- labour

— and the cost-price— 44
— growth of the mass of surplus-
labour with the development of
production — 219
— its natural basis — 632
— ground-rent as the product of
unpaid surplus-labour — 634,

790, 791, 792, 793

— forms of surplus-labour — 790,

791, 792-793

— source of profit— 690
— limits of — 792

— as a non-historical category —
819

— compulsory character of sur¬
plus-labour under capitalism —
819

— and necessary labour — 821, 833,
834

— and the general rate of profit —
875-876

S urplus-profit

— Its formation — 197, 199, 641-
648, 649, 726-732
— for waterfalls — 641-648
— transformation of surplus-profit
into rent— 645-648, 726-737,

763-764

— in industry — 761

S urplus- value

— formation of — 34, 35
— its source — 34, 149
— as the transmuted form of pro¬
fit— 35, 36, 37

— its seeming origin from sale —
37-38, 39, 44, 138, 827
— Proudhon on the origin of — 39
— and the time of circulation —
43, 279, 280, 827
— and the profit — 49
— and the wages— 51, 52
— and the length of the working-
day — 51, 52

—and the turnover of capital— 70
— its seeming origin from total
capital — 166, 167
— relative surplus-value — 219
— limit of surplus-value is the
physical maximum of the work¬
ing-day — 243, 860, 861
— factors determining surplus- val¬
ue— 247

— conditions for its existence —
634-635

— its division in capitalist so¬
ciety— 820

—its forms— 832, 833, 834, 840,
841, 846-848, 852-853
— historical development of — 903-
905

Also see: Profit

Tendency of rate of profit to fall, lau>

— as the result of the development
of the productivity of labour —
213, 214, 216, 217, 220, 258
— and the rising of the organic
composition of the capital — 213-

218, 239

— and bourgeois political economy
—214, 224, 225

— as the law of capitalist produc¬
tion — 214

— and growth of absolute magni¬
tude of the surplus-value — 218,
219-221, 223-225, 248
— and relative over-production —

219, 222, 224, 236

— and the increasing intensity of
exploitation— 232, 233, 239
— and technical progress — 233, 234
— factors due to which the law acts
as a tendency — 234, 235, 238
— and depression of wages below
the value of labour- power — 235
— and counteracting agencies —
232-240, 249

— and cheapening of elements of
constant capital — 235-236
— and foreign trade — 237-239
— and the productive labour — 239
—and stock capital— 240
— and the capitalist mode of pro¬
duction — 242

— and the competitive struggle —
253-254, 255-256
Time of production — 70, 302
Town

— role of commerce in the devel¬
opment of towns — 332
— and country-side — 799-800, 801
Turnover

— and the rate of profit — 50, 70-
76, 152, 228, 229

SUBJECT INDEX

947

— and surplus-value — 70
— of merchant’s capital and mer¬
cantile prices — 275-278, 302,

311, 312, 314

— of industrial capital — 276, 302,
303, 308, 309, 312
— rate of turnover and the amount
of merchant’s capital — 278
— and the commercial profit — 313,
314

U se- va lue

— of machinery — 80
— and the capitalist mode of pro¬
duction — 195, 574
— of commodity — 279
— of money serving as capital —
339, 343, 350, 351, 354, 392
— as the bearer of exchange-value
—646, 647

Usurer's capital

— historical form preceding the
capitalist mode of production —
593-594

— its development is hound up
with the development of mer¬
chant's capital — 593
—developed to its highest point
in ancient Rome — 593
—in pre-capitalist formations-

594, 595-596

— and capitalist mode of produc¬
tion-595, 596, 597, 610, 611
— exploits a given mode of pro¬
duction without altering it —

595, 596, 597, 610

— its influence on pre-capitalist
modes of production — 596, 597
— and the generating of capital —
597

— and the functions of money as
a means of payment — 599
— opposition to — 600-603
— and preconditions for the devel¬
opment of industrial capital —
610

Also see: Interest-bearing capital

Usury — see Usurer's capital

Value of commodity

— and the cost^ price — 26
—its definition— 42, 86, 140, 141,
150. 862-865, 881-882

— and the average rate of profit —

153

— and the price of production —
177, 861, 893-906
— conditions determining the sale
of commodities at their value —
177, 178, 179, 180, 181, 188
—and market-value— 178, 179,

660-661, 867-868

— individual value — 178, 182, 183,
184

— average value — 184
— and the commodity-price — 193,
870, 871

— its social character— 661
— and the monopoly price — 861
— regulates the production — 880
— Loria on — 891, 892
— Sombart on— 894
— Schmidt on— 894, 895
Variable capital — 30, 32, 52, 53,
114, 115, 116, 145, 146, 147,
171, 530, 531, 852

Vulgar bourgeois political economy
— Malthus on the regulation of
the cost of production by de¬
mand and supply — 191
—criticism of the methodology
of vulgar economists— 231, 786,
817-818, 827

—vulgar economists confuse trad¬
ing capital and industrial cap-
ital-267

— Say on the correlation of com¬
merce and production — 279
— vulgar economists on mercan¬
tile profit, commodity-capital
and money-capital — 323, 324
— Roscher on commodity-capital
-324

— Bosanquet on interest— 371
— vulgar economists on profit —
8-10, 388

— vulgar economists on capital —
393

— “Currency Principle" school —
417, 418, 419, 451, 547, 549-
552, 554, 563-564
— Overstone’s confusion over cap¬
ital— 419, 420, 421, 429-434
— Fullarton on capital— 448, 449,
450, 451, 452, 453, 457, 458,
459, 462

948

SUBJECT INDEX

— criticism of the theory of ab¬
stinence — 508

— vulgar economists on the crises
of over-production — 553
— John Stuart Mill on the Bank
Act of 1844—555-556
— John Stuart Mill’s theory of
money — 555-556
— little-shilling school — 560
— Carey on the capitalist mode of
production — 622
— Rodbertus on rent — 778
— criticism of Malthus's theory
of diminishing returns — 659,
671

Wages

— as the converted form of value
and the price of labour-power —
30, 44, 114, 465, 466, 817, 818,
819, 858-860, 870-871
— and the rate of profit — 51, 52,
56, 57, 64, 65, 105, 179, 180,

200, 513, 854

— and introduction of the ten-
hour working-day — 107
—and prices of production— 200,

201, 202, 203, 204

— and labour productivity— 220,
856

— depression of wages below the
value of labour-power — 235, 254
— and the requirements of the la¬
bourers — 245

— of commercial labourer — 297,
298

— and the supply and demand of
labour-power — 355, 863-864
— for skilled labour — 386
— and ground-rent — 624-625

— of farm-labourers — 627, 628,

629, 631, 632

— and labour — 814, 815, 822, 823
— as the basis of the limitation of
revenues — 858
— limits of — 858
— and competition — 863, 864
— basis of wages common to all
modes of production— 881
Wars and usury — 598
Waste, its usage — 79, 80, 101, 103
Wealth of society

— its antagonistic character under
capitalism — 355, 440
— its social nature — 440, 573
— and labour productivity — 819,
820

World-market

— basis of capitalist production —

— competition in — 120
— creation of — 266, 333
— struggle for supremacy in — 336,
490

Working-day

— its length and the rate of profit
—51, 64, 65, 740-741
— its prolongation— 113, 233
—and the exploitation of labour
—197, 216

— necessity of shortening the work¬
ing-day— 820

— struggle over the limits of — 827
— division of the working-day into
necessary labour and surplus la¬
bour — 833-834

— physical maximum of— 859
Work of management and supervision
— its necessity — 383-385
— Mommsen on — 384
— Aristotle on — 384, 385
— its origin — 385, 386
— and wages — 385, 386

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